Good afternoon. My name is Elisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Pan American Silver Corp's Fourth Quarter 2006 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions) Thank you. It is now my pleasure to turn the floor over to your host, Mr. Ross Beaty, Chairman. Sir, you may begin your conference.

Thank you very much, operator, and good day, ladies and gentlemen. Welcome to Pan American's Q4 and annual results conference call. I am currently away from Vancouver at a hotel room at an investment conference, but I am joined telephonically by; Geoff Burns, our President and CEO in our Vancouver office; our Senior Vice President, Andy Pooler, on Operations; Steve Busby on Projects and Developments; Michael Steinmann on Geology Business Development; Rob Doyle, our CFO; and Alexis Stewart, our Director of Investor Relations. Well, of course, you have all seen that we had a blowout fourth quarter, a record year, and it's a great time to be a large silver producer, and by the way, a very good time to be a large producer of our other byproduct, metals such as zinc, lead, and copper. We had record silver production, record earnings, record cash flow, record low cash cost, and we are in the middle of record production growth. With our silver production set to double over the next couple of years to over 25 million ounces. Our silver reserves grew by over 20% as well in 2006. Even after fully replacing the silver ounces we mined in the year. Our share price is just off an all-time high and yet we are cheaper today than we have ever been, when our share price is compared to our net asset value by current metal prices. Today, I am going to turn the call over now to Geoff Burns, who will review our financial and operating picture. I will then go over some exploration highlights and review silver markets as well as some of the Board changes we announced today. And then, we will open the call to questions. Geoff, over to you.Geoff Burns: Thanks, Ross. Let's get right into our…

Thank you very much, Geoff. That was a nice wrap. Well, I'm going to give a few comments now about some of our growth plans and some of our exploration projects. Last week, we announced a 20% increase in our silver reserves and more modest increases in our silver resources. We actually increased silver reserves at each one of our operations and major development projects, even after accounting for the 16 million ounces we mined in 2006. 16 million ounces of what we mined, 13 million ounces of what we sold because of losses during the milling process and selling process. I want to specifically highlight four of our operations where we had exceptional exploration results during the year. Firstly, at Huaron, our reserves increased at Huaron by 2 million tonnes of 6.6 million ounces to 8.7 million tonnes, containing 51 million ounces of silver. More importantly, we began drilling the deeper extensions to known veins and had virtually 100% success in proving our preserves, where we drilled below current reserve levels. There are literally dozens of silver veins at Huaron and I can confidently predict that we will be mining at Huaron for decades to come. At Quiruvilca, which has been in continuous production since 1926 or 81 years, we discovered important extensions to two vein systems with specialty high gold and zinc grades, as well as silver. Quiruvilca veins also extend very deeply and we expect continuing success in our 2007 drill programs there. At Morococha, our best and most profitable mine, reserves increased 30% in 2007, and have now increased five-fold since we acquired the mine in 2004. Reserves and resources now exceed 120 million ounces and we are confident again that we will see further increases in 2007 after we complete the planned 40,000-meter program in…

Thank you. The floor is now open for questions. (Operator Instructions) Our first question is coming Ian Howat with National Bank Financing. Please go ahead.

Hey, good afternoon, Geoff, and the rest of the team. You were calling from Morococha about doubling capacity. Can you give some more details about that project?

I sure can, Ian. The key is that, Morococha being an underground mine is expanding our capacity to extract the ore. And the two major projects we have going on right now, is Sierra Nevada ramp, as well as the inclined ramp and shaft system at the Galera and Buenaventura zones. It’s going to take us approximately two years to get the proper amount of development done where we can see a sustainable extraction rate of roughly 80,000 tonnes to 85,000 tonnes. The surface is the easy part. Expanding the mill, that's actually the easy part. The tough part is going to be putting in the development and underground infrastructure, power, water, conveyor systems to ramp up the production there.

So on an annual basis, what type of total tonnage are you talking about going through and what kind of capital are we talking for this project?

My target is to get -- we started this when we were at about 42,000 tonnes, 43,000 tonnes, Ian. And we have already got part way there with just the work we've done over the last year and a half. We are already up to 55,000 tonnes. A full-on target is 85,000 tonnes, that's where I like to see us get to.

Per day?

Per month.

That's per month.

Per month, okay.

Yeah. That's per month, thank you, gentlemen. And in terms of overall capital, I don't want to put my finger on that number, because we haven't completed yet the engineering on the surface installations.

Okay. And the current surface capacity is?

Right now, it’s at 55,000.

Okay. Thanks a lot, Geoff.

No problem.

Hello?

Your line is live. Please proceed.

Operator, we can't hear the line.

We'll go on with the following question coming from Terence Ortslan from TSO & Associates. Please go ahead. Terence Ortslan - TSO & Associates: Thanks. It wasn't me by the way. Ross, just come back to the broad industry parameters. The world is changing, frontiers are opening up, you guys have done a great job with the assets that you accumulated and developing it in all fronts, and the things are really coming together. Where else can we look at whereby we are missing the market or the opportunities that you want to take the company into in terms of silver or something else, geographically or deposit styles?

Okay. I can cover that one, I think, Geoff. Terry, as you know, Pan American has always had a single focus, to be the number one play for investors on an equity basis to basically get [levers] to silver. So our focus has always been the biggest reserves, the biggest production base, the lowest cost production, the best assets, but constantly-constantly, silver, silver, silver. The fact is we hold mines, as there is almost no silver mine in the world that’s pure silver. So there is always byproducts that come with one property or another and we have the full mix. We have lead, zinc, copper, and gold. But we are always focused and looking for primary silver deposits, over half of the revenues from the mine being silver. And it's very difficult to do that because silver is a byproduct metal. Most silver actually comes from primary gold mines, zinc mines, copper mines, and so on. Not from primary silver mines. Very, very, very few mines in the world are silver mines. So the opportunities for growth through acquisition and even through discovery are quite limited. And it's always been our constraining factor in our own growth relative to say gold companies or copper companies, where there are multiples of mines compared to silver mines. We are looking in the countries, which are the biggest silver producers in the world. We have very active programs, looking for new deposits and expansions of our existing land holdings and development of our existing land holdings in those countries, being Mexico and Peru, the number one and number two silver producers globally. You go, when you are looking for silver, to where you know what already is. We're also working in Argentina actively. We're working in some new areas like Ecuador, which is not well developed as a silver country, but there are some interesting properties there, and we're going to continue to look in other places where we think the geology is right. Africa is not a silver continent. Asia by and large, with the exception of one or two properties, is not a silver continent. It just doesn't have the right geology. So we’re luckily very much focused in North and South America, where 80% of the world's silver comes from and where our operations’ infrastructure is, our exploration infrastructure is. When we find something, we have all of the necessary people and understanding of the countries reality to develop the new asset. I do hope I answered the question. Terence Ortslan - TSO & Associates: You avoided Australia, Cannington being the largest silver producer.

Well, Cannington is basically a lead mine with silver byproducts. So, that's kind of a motherhood of where we're looking. Apart from Cannington, Australia has very limited prospects for primary silver deposits. There's maybe one other deposit, maybe two in the whole country. But of course, there's a lot more juniors now looking for silver because investors want more plays. They've been rewarding to those silver plays that exist and there's a lot more juniors looking for silver. Metal prices are up and silver mines are more profitable. And out of the number of junior companies looking for silver, there actually have been some very interesting discoveries. The problem is, today, investors are rewarding those discoveries with very high share prices and they are not discounting them for the risk that exists in the real world, be it political risk where they are working or social risks or reserve risks. They are assuming that the ounces are there, that are said to be there, and they are assuming they can be recovered. They are assuming they can be recovered profitably. And in fact in the real mining world, it's a very risky business, as you well know. And so when we're looking at an acquisition of a company that has found something, we do it on the classical net present value basis, which is heavily risk adjusted. And there's a big gap between our own net present values in large case for most of these projects and in fact what they're trading for, the market capitalization of the companies. So, that's where we've been fighting a little bit with opportunities to acquire and get into the M&A business. We were there back in 2002-2003. We acquired Corner Bay Silver for the Alamo Dorado property, but it's very difficult today. So we tend to be looking much more at growth on our existing land package, where it's still so cheap. This is a real low-hanging fruit, as well as generative work. Again, we have such a good property portfolio and our pipeline is so deep right now with existing projects to develop, we don't have to really worry about our production growth for the next few years by acquiring it. What we're looking for now are mines that we can start building in 2010, 2011. Terence Ortslan - TSO & Associates: Can I ask you one last question, Ross, about the management itself? Have you sat down and calculated your per ounce discovery costs in a sense of also maybe the acquisition parameter within it? Just putting these things together, it seems to me that you're right. The market is putting a huge premium to the new discoveries or new potential discovery prospects and taken away the valuation on the ounces from the producers.

Most definitely. I'll give you the best example. In 2006, the new ounces we added and these were not resource ounces, these were reserve ounces, these were at our mines and our advanced projects we're building mines on. $0.18 an ounce is what those ounces cost us to bring into reserves, $0.18 an ounce. Compare that to, in some cases, acquisition of some silver companies, which we would have to pay $10 an ounce to acquire their ounces because that's where they are being valued at by the market. So, there's a heck of a gap there between buying ounces for $10 per ounce and discovering them for $0.18 an ounce. Terence Ortslan - TSO & Associates: Would that be a good number to use, maybe it’s very difficult to do it from inception, but the last few years, can you round up and say your discovery costs has been in the neighborhood of less than $0.50 an ounce?

Michael? Would you have any -- I can't say that off the top of my head. Maybe, Michael, does that number sound reasonable to you?

Yeah, it sounds very reasonable to me, yes.

There you have it. Terence Ortslan - TSO & Associates: Okay. Thanks, guys.

Thanks, Terry.

Thank you. Our next question is coming from Steven Butler with Canaccord Adams. Please go ahead.

Good afternoon, ladies and gentlemen. Question for you, just to clarify the situation on the gain on sale of Dukat, and to clarify that, are you totally out of Dukat or is there any residual economic draw on that thing?

Bob?

We've sold our interest in Dukat in 2004. I assume to the terms of that sale, there are installments of another $12 million that may be payable depending on future silver prices, so there is potential to recognize another $12 million on the gain of that sale.

Okay. And why did the gain happen to be booked at this particular point?

It's potentially the contract terms. The $8 million is triggered by the average price that prevailed during 2006, so that $8 million is payable in December of 2007 based on the average price of 2006.

Oh, okay, right, right.

And the '05 price was much, much lower, so the payment then was $2 million and that was paid to us in December 2006.

Okay. And I know we spoke awhile ago with you. I'm trying to pull our hair out on TCRCs. I know you don't always give us the numbers we must like, but TCRCs, guys, I know that one of the limitations I think in some of your numbers throughout part of ‘06, in particular, maybe it was the price participation that was nipping you in the butt a little bit, but are TCRCs swinging in your favor a little bit in 2007 versus ‘06 including more favorable price participation or not?

Bob?

Yes, it's safe to say that, as we move forward, our contracts are more recently negotiated, and therefore, particularly the [scenario] that you referred to is more favorable and the basis is set at a higher threshold. So, as TCs and RCs alone vary depending on when you negotiate the contract, but certainly the [escalators] shouldn’t be hurting us as much as they did in 2006.

We should see a bit more volatility, I suppose, on the upside, hopefully on the zinc prices this year?

We should see some volatility, but it's also fair to remind people that we took a tremendous hit in 2006 for what turned out to be a bad decision to hedge our zinc in 2005. We took an $18 million hit on our income statement and of course our cash flow because of that. That we have now, of course, completely -- we have no more hedges and I think, everything else being equal, we’ll have that come in to income in 2007.

Okay. And last question, guys. What would it take, I suppose, obviously a bit more clarity on the situation in Bolivia, are things progressing from your dealings down there with the government or maybe just give us a bit more of an update than there is in the release?

Well, it's a situation that's in some flux. Bolivia is not terribly -- I've got to be polite here. Things are in flux in Bolivia right now. The government has proposed a new, what they call a Complementary Mining Tax, which would be absolutely fine with us if it were deductible from income tax. The way they’ve proposed it, it is not deductible from income tax. We think that is very regressive. It is going to be very, very punitive to pretty well everybody who produces minerals in the country. The corporate [tivos] in Bolivia, thousands and thousands of local miners took to the streets to protest this law last week. The result of that was that the government has withdrawn the bill and they're thinking about it now. They are not sure to whom they are going to apply to, if anybody, but as I said, we have no objection to the new tax except that we like to see it deductible from income tax, and to the extent it is, then I think that's going to be just fine with us. We'll launch the project aggressively.

Okay. Thanks very much, Ross.

Thank you. Our next question is coming from Mike Jalonen with Merrill Lynch. Please go ahead.

Hi, guys, I guess, Steve, jumped my question there, that's all right on Bolivia. I guess maybe just continue on, when would you get some clarification from Bolivia do you think. You mentioned the pullback last week the government did in the face of protest by the local miners, is there like any timeline in your mind when they’ll come back with something for the mining industry?

That's hard to say, Mike. It's a pretty volatile place and it has been for years. We don't really see that changing too much. As far as the mining industry is concerned, the new tax rules will affect everybody negatively and it's really a very regressive step from the standpoint of attracting foreign investment and giving them at least good returns. So, we’ve been actually competitive with Peru, and Chile, and Argentina, and all the countries around them, which have those strong, dynamic, wealth-creating mining industries. And so if that message is understood by Bolivia, they will come to their stances. Pan American really has some very minor impact right now, certainly now it has virtually no impact, whether or not they have these new taxes, but we would like to see that project go ahead, but even then San Vicente will be one of eight of our mines, not particularly more profitable than any of the others, even though it's a nice deposit and we would like to get it going. The operations that are far more affected are Apex’s San Cristobal mine, Coeur d'Alene, and San Bartolome mine, Glencore’s big zinc mines in the country. There are a lot of other big companies that will be really, really materially affected if that tax proceeds. So they are lobbying hard. We are lobbying hard. The local miners are lobbying hard. It's just not a very smart proposal we think, and hopefully, the government will come to its senses and understand that.

Okay, thank you.

Thank you. Our next question is coming John Bridges with J.P. Morgan. Please go ahead.

Hi, Ross. Just wondered, what would trigger the balance of this Dukat payment, the other $12 million?

Well, it's the same that has triggered the $8 million payment. It's all the formula that we sold, the interest we sold, our 20% stake in Dukat for $43 million. $20 million came upfront. $23 million is coming over time, based simply on silver prices. Silver prices were above a certain threshold. And it's a scaled payment, if silver prices average X, payment is X., and if they average Y, the payment is Y. So I forgot the exact numbers. But the balance of $12 million, I think if silver prices average current prices, we're going to see that all in 2007.

So it comes through in December 2007?

The $8 million that we booked in 2006 accounts will come through in December. Based on the prices in 2007, we will then book another number for payment in 2008.

This is for calendar 2006, the $8 million?

This is for calendar 2006, payable in December 2007.

Okay. And then, you're holding on to your shares, and I just wanted to play the devil’s advocate here, how would you as a major shareholder, at some stage when you do feel silver has reached its peak, take some profits? Would you have some sort of diversification program or how would that work?

Well, if I ever decided to sell my shares, I'd simply sell them. And you make a call at any point in time about whether things are peach or not. I'm a long-term holder. I've sold very, very few of the shares that I started the company with in 1994. I'm a long-term holder. I would like to think that Pan American will outlive me and that I'll be able to pass on those shares to my kids. So that's kind of where I look at things.

Okay. Thanks for that and congratulations for your company.

Thank you very much, John.

Thank you. There appears to be no further questions at this time. I'll turn the floor back over to you for any further or closing remarks.

Okay, Geoff, any comments?

I think we've covered the waterfront today, Ross.

Okay, very good. Well, I'll thank you all who have listened to the call and wish you a good day.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.