SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

Commission File Number 0-13727

Pan American Silver Corp.

British Columbia (Province or other Jurisdiction of Incorporation or Organization)		1044 (Primary Standard Industrial Classification Code Number)		Not Applicable (I.R.S. Employer Identification No..)

1500 – 625 Howe Street
Vancouver, British Columbia
V6C 2T6
(604) 684-1175
(Address and telephone number of Registrants’ principal executive offices)

CT Corporation System
111 Eighth Avenue, 13th Floor
New York, NY 10011
(212) 894-8940
(Name, address (including zip code) and telephone number
(including area code) of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class Common Shares, No Par Value		Name of each exchange on which registered The NASDAQ Stock Market Toronto Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

For annual reports, indicate by check mark the information filed with this Form:

þ Annual information form      þ Audited annual financial statements

     Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by this annual report.

The Registrant had 76,195,426 Common Shares
outstanding as at December 31, 2006

     Indicate by check mark whether the Registrant by filing 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 (the “Exchange Act”). If “Yes” is marked, indicate the filing number assigned to the registrant in connection with such Rule.

Yes o 82-   ______    No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ          No o

 

 

DOCUMENTS FILED UNDER COVER OF THIS FORM

Document No. 1:		Annual Information Form for the year ended December 31, 2006, dated March 21, 2007.
Document No. 2:		Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2006.
Document No. 3:		Audited Consolidated Financial Statements for the financial year ended December 31, 2006, prepared in accordance with Canadian generally accepted accounting principles, and reconciled to United States generally accepted accounting principles in accordance with Item 18 of Form 20-F.

Document No. 1

Annual
Information
Form

For the Year
Ended December 31, 2006

Dated: March 21, 2007

1500-625 Howe Street
Vancouver, British Columbia
V6C 2T6

Web Site: www.panamericansilver.com

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

     This Annual Information Form, and the documents incorporated by reference herein, contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable Canadian provincial securities laws relating to Pan American and its operations. All statements, other than statements of historical fact, are forward-looking statements. When used in this Annual Information Form, the words “anticipate”, “believe”, “estimate”, “expect”, “target”, “plan”, “forecast”, “budget”, “may”, “schedule” and other similar expressions, identify forward-looking statements. These forward-looking statements relate to, among other things:

	•		the sufficiency of Pan American’s current working capital and anticipated operating cash flow;
	•		the accuracy of mineral reserve and resource estimates and estimates of future production and future cash and total costs of production at Quiruvilca, Huaron, Morococha, La Colorada, San Vicente, Alamo Dorado, Manantial Espejo, the stockpiles or other properties;
	•		estimated production rates for silver and other payable metals produced by Pan American, timing of production and the cash and total costs of production at each of the Company’s properties;
	•		the estimated cost of and availability of funding for ongoing capital replacement or improvement programs;
	•		the estimated cost of construction, development and ramp-up of Alamo Dorado, Manantial Espejo or other projects;
	•		the estimates of expected or anticipated economic returns from a mining project, as reflected in feasibility studies prepared in relation to development of projects;
	•		estimated exploration expenditures to be incurred on the Company’s various silver exploration properties;
	•		compliance with environmental regulations;
	•		the effects of laws, regulations and government policies affecting the Company’s operations;
	•		forecast capital and non-operating spending; and
	•		future sales of the metals produced by Pan American.

     These statements reflect the Company’s current views with respect to future events and are necessarily based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements contained in this Annual Information Form including, without limitation, risks related to technological and operational nature of the Company’s business, changes in local government legislation, taxation or the political or economic environment, the actual results of current exploration activities, conclusions of economic evaluations, changes in project parameters to deal with unanticipated economic factors, future prices of silver, gold and base metals, increased competition in the mining industry for properties, equipment, qualified personnel, and their rising costs, unpredictable risks and hazards relating to the operation and development of our mines or properties, the speculative nature of exploration and development, as well as those factors identified under the captions “Outlook for 2007” and “Competitive Conditions” and “Risks Related to Pan American’s Business” in this Annual Information Form. Investors are cautioned against attributing undue certainty to forward-looking statements. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update these forward-looking statements to reflect changes in assumptions or changes in circumstances or any other events affecting such statements, other than as required by applicable law.

Please see Cautionary Note to U.S. investors Concerning Estimates of Measured, Indicated and Inferred Resources on page 2 of this Annual Information Form.

TABLE OF CONTENTS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS			i
TABLE OF CONTENTS		ii
INTRODUCTION			1
Reporting Currency			1
Accounting Policies and Financial Information			1
Conversion Table			1
Glossary of Terms			1
Scientific and Technical Information			2
Classification of Mineral Reserves and Resources			2
Cautionary Note to U.S. Investors Concerning Estimates of Measured, Indicated and Inferred Resources			2
CORPORATE STRUCTURE			2
Incorporation			2
Capital Structure			3
Subsidiaries			3
GENERAL DEVELOPMENT OF THE BUSINESS			5
Business of Pan American			5
Corporate Strategy and Financial Objectives			5
Developments over the Last Three Financial Years			6
Outlook for 2007			7
NARRATIVE DESCRIPTION OF THE BUSINESS			8
PRINCIPAL PRODUCTS AND OPERATIONS			8
COMPETITIVE CONDITIONS			9
EMPLOYEES			9
RESEARCH AND DEVELOPMENT			10
WORKING CAPITAL			10
ENVIRONMENTAL PROTECTION			10
ENVIRONMENT			10
HEALTH AND SAFETY			11
MATERIAL PROPERTIES			11
A. OPERATING MINES			13
B. DEVELOPMENT PROJECTS			63
C. INVESTMENT AND RESOURCE PROPERTIES AND EXPENDITURES			73
Mineral Property Expenditures			74
Metals Trading			74
RISKS RELATED TO PAN AMERICAN’S BUSINESS			75
SELECTED CONSOLIDATED FINANCIAL INFORMATION			84
Annual Information			84
Dividends			85
MANAGEMENT’S DISCUSSION AND ANALYSIS			85
DIRECTORS AND OFFICERS			85
EXCEPTIONS FROM NASDAQ CORPORATE GOVERNANCE REQUIREMENTS			89
MARKET FOR SECURITIES			89
LEGAL PROCEEDINGS AND REGULATORY ACTIONS			90
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS			90
TRANSFER AGENTS AND REGISTRAR			90
MATERIAL CONTRACTS			91
INTERESTS OF EXPERTS			91
ADDITIONAL INFORMATION			91
GLOSSARY OF TERMS			92
APPENDIX “A” –Audit Committee Charter			A-1

INTRODUCTION

     In this Annual Information Form, the term “Company” refers to Pan American Silver Corp. and the term “Pan American” refers to the Company and its direct and indirect subsidiaries.

Reporting Currency

     Pan American’s reporting currency is the United States dollar. Unless otherwise indicated, all currency amounts in this Annual Information Form are stated in United States dollars. References to “C$” are to Canadian dollars.

Accounting Policies and Financial Information

     Financial information is presented in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). Unless otherwise indicated, financial information contained in this Annual Information Form is presented in accordance with Canadian GAAP. Differences between accounting principles generally accepted in Canada and those generally accepted in the United States, as applicable to Pan American, are explained in Note 20 to the Consolidated Financial Statements of the Company for the year ended December 31, 2006. The Consolidated Financial Statements of the Company for the year ended December 31, 2006 are incorporated by reference herein and are available on SEDAR at www.sedar.com.

     This Annual Information Form refers to various non-GAAP measures, such as “cash and total cost per ounce of silver”, which are used by the Company to manage and evaluate operating performance at each of the Company’s mines and are widely reported in the silver mining industry as benchmarks for performance, but do not have standardized meaning. To facilitate a better understanding of these measures as calculated by the Company, please refer to the Company’s Management’s Discussion and Analysis where detailed descriptions and reconciliations, where applicable, have been provided.

Conversion Table

     In this Annual Information Form, metric units are used with respect to mineral properties located in Peru, Mexico, Bolivia, Argentina and elsewhere, unless otherwise indicated. Conversion rates from imperial measures to metric units and from metric units to imperial measures are provided in the table set out below.

Imperial Measure		=		Metric Unit			Metric Unit		=		Imperial Measure
2.47 acres				1 hectare			0.4047 hectares				1 acre
3.28 feet				1 metre			0.3048 metres				1 foot
0.62 miles				1 kilometre			1.609 kilometres				1 mile
0.032 ounces (troy)				1 gram			31.1 grams				1 ounce (troy)
1.102 tons (short)				1 tonne			0.907 tonnes				1 ton
0.029 ounces (troy)/ton				1 gram/tonne			34.28 grams/tonne				1 ounce (troy)/ton

Glossary of Terms

     The glossary of terms set forth under the heading “Glossary of Terms” of this Annual Information Form contains definitions of certain terms used herein.

Scientific and Technical Information

     Scientific or technical information in this Annual Information Form relating to mineral reserves or mineral resources is based on information prepared under the supervision of, or has been reviewed by, Michael Steinmann, Senior Vice President, Geology and Exploration of Pan American and Martin Wafforn, Vice President, Mine Engineering of Pan American. Scientific or technical information relating to the geology of particular properties, and the exploration programs described in this Annual Information Form, are prepared and/or designed and carried out under the supervision of Michael Steinmann, Senior Vice President, Geology and Exploration of Pan American.

     Each of Michael Steinmann and Martin Wafforn is a “Qualified Person” as defined in National Instrument 43-101. A “Qualified Person” means an individual who is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these, has experience relevant to the subject matter of the mineral project, and is a member in good standing of a professional association.

Classification of Mineral Reserves and Resources

     In this Annual Information Form, the definitions of proven and probable mineral reserves and measured, indicated and inferred resources are those used by Canadian provincial securities regulatory authorities and conform to the definitions utilized by the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) in the “CIM Standards on Mineral Resources and Reserves – Definitions and Guidelines” adopted on August 20, 2000 and amended December 11, 2005.

Cautionary Note to U.S. Investors Concerning Estimates of Measured, Indicated and Inferred Resources

     In this Annual Information Form, the terms “measured resources” and “indicated resources” are used. The Company advises U.S. investors that while such terms are recognized and permitted under Canadian securities rules, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into proven or probable reserves.

     This Annual Information Form also uses the term “inferred resources”. The Company advises U.S. investors that while such term is recognized and permitted under Canadian securities rules, the U.S. Securities and Exchange Commission does not recognize it. “Inferred resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian securities rules, estimates of inferred mineral resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an inferred resource exists, or is economically or legally mineable.

CORPORATE STRUCTURE

Incorporation

     The Company is the continuing corporation of Pan American Energy Corporation, which was incorporated under the Company Act (British Columbia) on March 7, 1979. The Company underwent two name changes by way of amendment to its memorandum, the last occurring on April 11, 1995, when the present name of the Company was adopted. Amendments to the memorandum of the Company to date have been limited to name changes and capital alterations. In May of 2006, the Company obtained shareholder approval to amend its memorandum and articles

including the increase in the authorized share capital of the Company from 100,000,000 to 200,000,000 common shares in connection with the Company’s required transition under the Business Corporations Act (British Columbia).

     The Company’s head office is situated at 1500 — 625 Howe Street, Vancouver, British Columbia, Canada, V6C 2T6 and its registered and records offices are situated at 1200 Waterfront Centre, 200 Burrard Street, Vancouver, British Columbia, Canada, V7X 1T2. The Company’s web site can be found at www.panamericansilver.com.

Capital Structure

     The Company’s authorized share capital consists of 200,000,000 common shares without par value. The holders of common shares are entitled to: (i) one vote per common share at all meetings of shareholders; (ii) receive dividends as and when declared by the directors of the Company; and (iii) receive a pro rata share of the assets of the Company available for distribution to the shareholders in the event of the liquidation, dissolution or winding-up of the Company. There are no pre-emptive, conversion or redemption rights attached to the common shares.

Subsidiaries

     A significant portion of the Company’s business is carried on through its various subsidiaries. The following table shows, as at December 31, 2006, the significant subsidiaries, joint ventures and associated companies of the Company, including their respective jurisdictions of incorporation and the percentage of voting securities in each that are held by the Company directly or indirectly:

Name		Jurisdiction		Ownership (%)
Pan American Silver (Barbados) Corp. (“Pan American Barbados”)		Barbados		100
Pan American Silver Peru S.A.C. (“Pan American Peru”)		Peru		100
Pan American Silver S.A. Mina Quiruvilca (“Mina Quiruvilca”) 1		Peru		99.93
Compania Minera Argentum (“Argentum”) 2		Peru		92.012
Corner Bay Silver Inc. (“Corner Bay”)		Canada		100
Minera Corner Bay S.A. de C.V. (“MCB”)		Mexico		100
Plata Panamericana S.A. de C.V. (“Pan American Mexico”)		Mexico		100
Pan American Minerals, Inc. (“Pan American U.S.”)		Nevada		100
Pan American Silver (Bolivia) S.A. (“Pan American Bolivia”)		Bolivia		553
Compania Minera Alto Valle S.A. (“Alto Valle”)		Argentina		1004
Minera Triton Argentina S.A. (“MTA”)		Argentina		1004

GENERAL DEVELOPMENT OF THE BUSINESS

Business of Pan American

     Pan American is principally engaged in the exploration for, and the acquisition, development and operation of, silver producing properties and assets. The Company’s principal product is silver, although copper, zinc, lead and gold are also produced and sold. At present, the Company carries on mining operations and is developing mining projects in Mexico, Peru, Argentina and Bolivia, and has control over non-producing silver resources in the United States and Argentina. Exploration work is carried out in all of the aforementioned countries, as well as elsewhere throughout the world.

Corporate Strategy and Financial Objectives

     Pan American’s corporate strategy is to continuously strengthen its position as one of the world’s largest and lowest cost primary silver mining companies by acquiring or discovering silver resources that have the potential to be developed economically and add meaningfully to Pan American’s production profile while lowering consolidated unit costs of production.

     The key elements of Pan American’s strategy are to:

	•		Increase silver production — During its twelve year history, Pan American has increased its annual silver production each year, including a 16% increase from 11.2 million ounces in 2004 to 13.0 million ounces in 2006. This has been accomplished through a combination of acquisition and development and expansion efforts. During the most recent year, Pan American (i) completed mine construction of its Alamo Dorado mine in Mexico; (ii) purchased the remaining 50% of the silver-gold Manantial Espejo project in Argentina and began construction of the mine; and (iii) increased its exploration efforts focussed on areas around its existing mines and early stage exploration activities in Peru, Mexico, Argentina and Ecuador.
			Silver production increased during the year ended December 31, 2006, to 13.0 million ounces, which was a 4% increase over 2005. Silver production as at December 31, 2005 was approximately 12.5 million ounces, which was a 12% increase over 2004.
	•		Increase Reserves and Resources — At December 31, 2006 proven and probable silver mineral reserves for Pan American were 213.4 million ounces which represents a 20% increase over the year earlier. At the Company’s operating and development properties, measured and indicated resources increased 12.1 million ounces, while inferred resources grew by 9.9 million ounces.
	•		Continue to be a “Low Cost Producer” — Together with increased production, Pan American has been successful at reducing its cash costs of production. Full year 2006 cash costs to produce an ounce of silver were $1.89. Although low cash costs experienced in 2006 were attributable to higher realized by-product base metal prices, Pan American’s growth strategy includes focusing on reducing overall unit production costs. To keep production costs down, the Company is adding newer more mechanized mines (such as Alamo Dorado and Manantial Espejo) to its portfolio of assets, and will continue to review mining plans at its operating mines in order to find greater productivities and efficiencies as well as develop financial strategies to reduce exposure to foreign currency exchange fluctuations and base metal price fluctuations.

	•		Acquire additional silver exploration properties — Pan American is seeking to acquire a portfolio of promising silver exploration properties. Pan American’s exploration and acquisition focus is on silver properties with bulk mineable targets that have the possibility of possessing over 50 million ounces of silver mineralization to supplement Pan American’s existing base of silver exploration properties.
	•		Generate sustainable profits from mining operations — Financial performance is monitored annually against targets for operating earnings and cash flow from operations, as well as against operating measures such as production. Pan American continuously develops and implements tax planning strategies, and seeks to organize its corporate structure and activities to optimize its overall tax position.

Developments over the Last Three Financial Years

     During the last three financial years the Company has undertaken the following:

	•		2004 — (i) completed an expansion of and commenced commercial production at the La Colorada mine in Mexico; (ii) assumed the operator role in respect of the Manantial Espejo development project in Argentina; (iii) reached two agreements, one to purchase an 81% interest in Argentum for approximately $33.8 million and the other to purchase all of the issued and outstanding shares of Natividad for $1.5 million in cash, together resulting in Pan American obtaining concessions and mining operations referred to as the “Morococha mine” (subsequently, Pan American acquired an additional 5% interest in Argentum for $1.5 million); (iv) made an offering of 3,333,333 common shares at a price of $16.50 per share for proceeds of $55 million; (v) sold 6,839 hectares of mining concessions and surface rights in the vicinity of the Quiruvilca mine to Barrick Gold Corporation (“Barrick”) for $3,582,575 and for the assumption of $67,425 of payments owing in respect of these mining concessions; (vi) made a formal offer (the “Conversion Offer”) to encourage conversion by holders of the Company’s $86.25 million outstanding principal amount of Debentures (as at December 31, 2004 holders of approximately $717,000 principal amount of Debentures remained unconverted, and the Company issued 9,145,700 million common shares, and made cash payments of approximately $11.5 million, in respect of such conversions); and (vii) sold its 20% interest in the Dukat silver mine in Magadan State, Russia to OAO MNPO Polimetall, the mine’s owner and operator, for $20.5 million in cash and the right to receive up to $22.5 million in contingent future payments.
	•		2005 — (i) completed the feasibility study for, and commenced construction of, an open pit silver mine at the Alamo Dorado silver project in Mexico; (ii) entered into a consignment agreement with Northwest Territorial Mint to produce a new line of silver bullion products; (iii) completed 14,000 metres of exploration and infill drilling at Morococha, resulting in an increase in proven and probable reserves and an extension of the life of the mine; (iv) completed, and submitted to the Argentine authorities, an environmental impact statement for the development of the Manantial Espejo joint venture silver project; (v) resumed commercial production at the San Vicente mine under a toll milling agreement with a nearby mill and renegotiated an agreement with EMUSA, a Bolivian mining company, to increase Pan American’s interest in the San Vicente mine from 50% to 55%; (vi) conducted extensive exploration activity which replaced all ounces mined and increased total proven and probable reserves by 30.5 million ounces; and (vii) the Company issued 255,781 warrants to the International Finance Corporation in exchange for the termination of past and future obligations relating to production from the La Colorada mine.
	•		2006 — (i) completed construction of the Alamo Dorado mine; (ii) acquired the remaining 50% interest in the Manantial Espejo project from Silver Standard Resources Inc. for 1.95 million common shares of the Company; (iii) obtained approval of the environmental impact statement necessary to begin

development of the Manantial Espejo silver-gold mine and commenced construction of the mine; (iv) completed an equity financing, the gross proceeds of which totalled $150 million earmarked primarily for the development of the Manantial Espejo mine; (v) conducted over 90,000 metres of exploration drilling on the Company’s existing mine site properties, largely contributing to a 20% increase in the Company’s proven and probable reserves and an increase in reserves and resources at each of the company’s operating and development properties; (vi) redeemed or converted the outstanding principal amount of the Company’s 5.25% convertible debentures remaining after the Conversion Offer made in 2004; (vi) completed the first phase of the sulphide plant refurbishment at La Colorada; and (vii) increased overall Company consolidated silver production to 13.0 million ounces.

Outlook for 2007

     In 2007, Pan American expects to: (i) increase annual consolidated silver production largely from production at Pan American’s newest mine, Alamo Dorado; (ii) maintain close to the current level of production at the Quiruvilca, Huaron, Morococha and La Colorada mines; (iii) substantially advance construction of the underground ramp system and the open pit at the Manantial Espejo project; (iv) reach sustained commercial production levels at Alamo Dorado; (v) undertake a 100,000 metre diamond drill program at Pan American’s existing sites and exploration properties; (vi) begin underground development work at Morococha; and (vii) complete ramp up of production from the Amolillo oxide zone at La Colorada.

     Pan American will continue to investigate, evaluate and, where appropriate, acquire additional silver production, exploration and development properties.

NARRATIVE DESCRIPTION OF THE BUSINESS

PRINCIPAL PRODUCTS AND OPERATIONS

     Pan American’s principal products and sources of sales are silver bullion, zinc, lead and copper concentrates in addition to gold bullion. In 2006, the Quiruvilca, Huaron, Morococha, San Vicente and La Colorada mines and the Stockpiles accounted for all of Pan American’s production of concentrates and doré. Information related to Pan American’s segmented information is set forth in Note 15 to the Consolidated Financial Statements and is referred to in the Management’s Discussion and Analysis of the Company for the year ended December 31, 2006 (the “MD&A”) under the heading “Operating Performance”.

     Consolidated production for the year ended December 31, 2006 was as follows:

		Quiruvilca				Huaron				La Colorada1				Morococha2				San Vicente3				Consolidated
Tonnes milled			370,115				693,285				233,743				577,201				29,618				1,903,963
Grade
Silver — grams/tonne			209				200				540				186				326				N/A
Gold — grams/tonne			0.91				0.32				0.60				—				—				N/A
% Zinc			2.79				2.59				2.10				3.73				3.44				N/A
% Lead			0.86				1.31				1.07				1.33				—				N/A
% Copper			0.51				0.37				—				0.41				0.22				N/A
Production
Ounces silver			2,105,475				3,664,660				3,493,995				2,923,267				264,573				13,018,354	4
Ounces gold			1,106				1,832				3,501				—								6,438
Tonnes zinc			8,712				11,735				—				18,115				805				39,366
Tonnes lead			2,574				6,858				153				5,722				—				15,307
Tonnes copper			1,345				1,603				—				1,546				52				4,546

     Pan American’s principal buyers of refined silver and gold are International bullion banks. Silver and gold doré is delivered truck to refineries in Mexico and the USA, and subsequently transferred to the account of the appropriate buyer.

     Pan American’s principal market for copper concentrates and ore form the Stockpiles is Peru. The majority of the copper concentrates and all of the Stockpiles are sold to Doe Run Peru’s metallurgical complex in La Oroya, Peru. Copper concentrates and Stockpiles are delivered to La Oroya by truck.

     Pan American’s principal markets for zinc concentrates are Peru, Japan, Brazil and Spain. Zinc concentrate is delivered to Peruvian customers by truck. Zinc concentrates are delivered to customers in Japan, Brazil, and Spain by truck to the port of Callao, Peru and from there by ship.

     Pan American’s principal markets for lead concentrates from the Peruvian mines are Peru, Russia, China and Belgium. Lead concentrate is distributed to the Peruvian customers by truck. Lead concentrates that are exported are delivered by truck to the port of Callao, Peru and from there by ship.

     Lead concentrates produced from the La Colorada mine are sold to a customer in Mexico. Lead concentrates are distributed to the Mexican customer by truck.

COMPETITIVE CONDITIONS

     The mining industry is intensely competitive particularly in the acquisition of additional reserves and resources in all of its phases of operation and Pan American competes with many companies possessing similar or greater financial and technical resources.

     Pan American’s competitive position is largely determined by its costs compared to other producers throughout the world and its ability to maintain its financial integrity through the lows of the metal price cycles. Costs are governed to a large extent by the location, grade and nature of Pan American’s mineral reserves as well as by operating and management skills. In contrast with diversified mining companies, Pan American focuses on silver production, development and exploration, and is therefore subject to unique competitive advantages and disadvantages related to the price of silver and to a lesser extent, the price of base metal by-products. If silver prices substantially increase, Pan American will be in a relatively stronger competitive position than diversified mining companies that produce, develop and explore for other minerals in addition to silver. Conversely, if silver prices substantially decrease, Pan American will be at a competitive disadvantage to diversified mining companies.

EMPLOYEES

     The Company has 18 full-time employees and four part-time employees at its head office in Vancouver, including the executive chairman, a chief executive officer, chief financial officer, controller, two geologists, a metallurgical engineer, two mining engineers, one safety specialist, one environmental specialist, two certified general accountants, two lawyers, one treasury specialist, one human resource specialist, and one corporate/investor relations specialist and support staff.

     As at December 31, 2006, Mina Quiruvilca employed 890 persons (375 permanent and 515 temporary) in connection with the operation of the Quiruvilca mine. Approximately 278 of the workers employed by Mina Quiruvilca are members of either the Sindicato de Trabajadores de Pan American Silver S.A.C. – Mina Quiruvilca (the “Quiruvilca Union”) or the Sindicato de Trabajadores de Shorey y Anexos (the “Shorey Union”).

     Minera Huaron directly employs 625 full time employees (208 permanent and 417 temporary) and indirectly employs 940 persons through agreements with Peruvian mining contractors.

     Argentum directly employs 556 full time employees (49 permanent and 507 temporary) and indirectly employs 1,142 persons through agreements with Peruvian mining contractors.

     Pan American Silver Peru employs 38 full-time employees and three contractors.

     Throughout Mexico, Pan American Silver Corporation’s subsidiaries employ 10 geologists, 20 process engineers, 20 mining engineers, and 21 administrative professionals in the supervision and management of exploration and production activities. Plata Panamericana employs 550 employees at the La Colorada mine and Minera Corner Bay employs 220 employees at the Alamo Dorado mine.

     Pan American Bolivia has 40 full time employees, including three metallurgists, four mining engineers, three geologists, one civil engineer, two mechanical engineers, one environmental engineer and one safety specialist. Pan American Bolivia also employs approximately 230 unionized employees, 30 temporary workers and 15 trainers.

     MTA employs 76 full time employees, including two geologists, four mine engineers, two metallurgists, one environmental specialist, and one community relations professional.

RESEARCH AND DEVELOPMENT

     Pan American conducts research and development activities through its feasibility work in order to develop improved production processes and exploration techniques. Costs associated with this work are expensed as incurred. Pan American undertook research and development at Alamo Dorado and in connection with the Stockpiles, but did not incur any significant research and development costs during 2004, 2005, or 2006 and has not budgeted for any significant costs during 2007.

WORKING CAPITAL

     Management of Pan American believes that its working capital of $204.6 million as at December 31, 2006, plus its expected operating cash flows in the future and its liquid assets are sufficient to sustain funding for projects currently underway, and capital expenditures in connection thereto, and to discharge liabilities as they come due in the foreseeable future.

ENVIRONMENTAL PROTECTION

     All phases of Pan American’s operations are subject to environmental regulation in the various jurisdictions in which it operates. To the best of management’s knowledge, Pan American’s activities in 2006 were, and continue to be, in compliance in all material respects with such environmental regulations applicable to its mining operations, development and exploration activities. The Company has implemented an environmental policy and a health and safety policy in which the Company accepts its corporate responsibility to practice environmental protection and provide a safe and healthy workplace for its employees, and commits to comply with all relevant industry standards, environmental legislation and regulations in the countries where it carries on business.

     In the financial year-end dated December 31, 2006, Pan American’s environmental costs were approximately $1.2 million. Operating costs were incurred principally for the acid water treatment plant at Quiruvilca and project costs were principally for reclamation of historic mining activities at Huaron and Quiruvilca and to the expansion of the tailings dam at Morococha.

     As at December 31, 2006, the Company has estimated the present value of expenditures required for closure and reclamation costs in respect of the Quiruvilca, Morococha, Huaron, La Colorada and Alamo Dorado mines and the Manantial Espejo project to be approximately $44.3 million. This was an increase from the estimate of $39.4 million at December 31, 2005. Other than specific environmental concerns discussed in this Annual Information Form, the Company is not aware of any material environmental matter requiring significant capital outlays in the immediate future.

ENVIRONMENT

     During 2006, a review of the environmental performance of the Quiruvilca, Huaron, Morococha, La Colorada and San Vicente mines was conducted by the Corporate Director of Environmental Affairs. The review included an inspection of the mine sites with key operations personnel, a review of environmental monitoring program procedures and results and review of principal environmental issues related to each of these operations. The key observations and recommendations from the reviews are reported monthly to senior management and quarterly to the Board of Directors. The reclamation and closure cost estimates for each of the operating mines and development projects were updated to reflect the conditions as of December 31, 2006 and the estimate line item composition was standardized throughout all of the mines and projects.

     Key accomplishments during 2006 related to the environmental management of the mines and development projects and include: (i) preparation and submittal of closure plans for the Quiruvilca, Morococha and Huaron mines in accordance with the requirement of the Peruvian Ministry of Energy and Mines’ (“MEM”) guidelines; (ii)

initiation of the final reclamation of the La Codiciada wasterock pile at the Quiruvilca Mine; (iii) ongoing treatment of acid mine water effluent at the Quiruvilca mine; (iv) reclamation of small wasterock and tailings areas at the Quiruvilca mine (v) expansion and upgrade of the mine water collection and treatment system at the Huaron mine; (vi) initiation of the reclamation of the tailings areas at the Huaron mine; (vii) planning for the expansion of the La Colorada tailings facility; (viii) expansion of the Morococha tailings facility; and (ix) initiation of the update of the environmental license for the San Vicente mine.

HEALTH AND SAFETY

     During 2006, a formal Corporate Health and Safety Audit was conducted at Quiruvilca, Huaron, La Colorada, and the San Vicente mines. The audits consisted of a week long audit of the safety and health aspects of each of the mines and focused on a review of the health, and safety systems, safety training, and general condition of each mine. Participating in the audit was a third party consultant as well as safety managers from other Pan American operations. Audit findings were recorded and a schedule for mitigation was developed. All of the aforementioned mines are aggressively addressing the Health and Safety findings and mitigation progress is reported to the Company’s board of directors on a quarterly basis.

     During 2006 Pan American experienced a significant improvement in its safety record, with an overall 47% reduction in lost time accidents (“LTA”) at our wholly owned operating mines (70 LTAs in 2005 compared to 37 LTAs in 2006). These achievements are directly related to the time and attention focussed throughout 2005 and 2006 on health and safety by management of the Company. In 2005, Pan American introduced complete safety audits at all of its operations, increased the frequency of, and requirements for, training programs, and purchased advanced mine rescue equipment. Pan American will continue to make substantial investments in its safety programs throughout 2007, particularly through the implementation of more training programs and systems to streamline the aforementioned safety audits of each mine.

MATERIAL PROPERTIES

     Pursuant to Canadian Securities Administrators’ National Instrument 51-102, the following properties and projects have been identified by Pan American as being material: the Quiruvilca Mine, Huaron Mine, La Colorada Mine, Alamo Dorado Mine, and the Morococha Mine. The Company does not consider the San Vicente Mine, the Silver Stockpiles, or any of the Company’s development or investment properties to be material properties for the purposes of this Annual Information Form.

Mineral Reserve and Mineral Resource estimate information

     The process for economic assessment of the ore reserves and resources at Pan American Silver Corp’s operating mines, and those development projects that have previously been the subject of a positive feasibility study and NI 43-101 Technical Report is as follows:

     Each resource block at each mine or project are assigned a resource confidence rating based on CIM standards, as well as tonnes and metal grades typically using Minesight, Datamine, Autocad, database and/or Excel Spreadsheet software.

     Mining parameters such as dilution and losses due to pillars or mining are applied to the resource blocks based on experience with the expected mining method for the block at the particular mine or, in the case of projects, on the basis of engineering studies. These factors are reviewed and adjusted on at least an annual basis using information from a number of geologic and engineering observations including reconciliation data to the tonnes and grades measured in the process plant.

     For the Huaron, Quiruvilca, Morococha, San Vicente and La Colorada mines metal price factors are calculated for each mine using a Microsoft Excel spreadsheet. A separate factor is calculated for each of the metals

of economic significance at the particular mine. These metals (not necessarily in order of overall economic significance) are: silver, zinc, lead, copper and gold. The key inputs used in order to calculate the factors are: metal prices established for ore reserve and resource calculation each year, metallurgical recovery for each metal, the weight of each concentrate produced for each tonne of ore at a particular grade, expected grade of concentrate, any elements that are present that detract from the value, current terms for smelting each of the concentrates produced at a mine or project, refinery terms for treatment of doré, the costs of smelting and or refining, the percentage of each metal payable by the smelter or the refinery, the cost of transporting concentrate or doré to the smelter or refinery including insurance and other costs that may be incurred in the process of selling the product like port fees and cost of concentrate storage and handling. In the case of the Huaron mine, individual factors are calculated separately for the main ore veins or structures in order to account for variances in metallurgical recovery. The La Colorada mine has separate calculations for oxide and sulphide ores as these two types of ore are processed in separate plants.

     The factors are applied to the metal grades in each of the resource blocks and summated in order to calculate a Net smelter return (NSR) value per tonne for each of the blocks in the resource model.

     In order to determine if a block can be deemed economic, the expected mine operating costs are used to calculate the value per tonne that is required from each block in each area of the mine. Blocks that are in the Measured and Indicated category that fit into a previously created mine plan are then converted to Proven and Probable reserves. Measured resource blocks are converted into either Proven or Probable reserves, and Indicated resource blocks are converted into Probable reserves all at the discretion of Pan American’s Qualified Persons. Measured and Indicated resource blocks that do not fit into a mine plan; are in an area of the mine where a development decision has not been taken, or are in an area where more information is required to determine mineability remain as Measured and Indicated Resource blocks as long as they are potentially economic. Inferred resource blocks remain as inferred resources as long as the estimated grade is such that they will be potentially economic. A cut off value per tonne is established each year for each mine or project.

     The metal prices used for the December 31, 2006 ore reserve and resource calculations are as follows:

Silver US$/Ounce		$	9.00
Zinc US$/Tonne		$	2,100
Lead US$/Tonne		$	1,000
Copper US$/Tonne		$	5,000
Gold US$/Ounce		$	525

     The cut off (in $/Tonne) for reserve and resource calculations at the Huaron, Quiruvilca, Morococha, San Vicente and La Colorada mines are shown in the following table:

		Ore Reserves				Ore Resource
		Cut Off ($/Tonne)				Cut Off ($/Tonne)
Huaron			32.00				25.00
Quiruvilca			27.00				20.00
Morococha			34.00				27.00
San Vicente			34.00				17.00
La Colorada			56.18				56.18

The cut off values per tonne for Huaron, Quiruvilca, Morococha and La Colorada are the averages applied for each mine. These are all values that pay at a minimum the variable costs of production (incremental ore). As the average value per tonne of the ore reserve is higher than these minimum values, the mine plans at each operation are designed to ensure that the fixed costs of the operation are paid by the higher grade ore. At each of the operations shown in the table, the current throughput capacity of the process plant(s) is either greater than the capacity of the mine, or the mine would not be able to produce enough ore to keep the mill operating at full capacity without the addition of incremental ore.

     Mineral reserve and mineral resource estimates for the Company’s development projects are prepared on the following basis:

     The Alamo Dorado mine uses a cut off grade that varies by each block, primarily as a function of the copper grade and expected cyanide consumption during the treatment process. The lowest value for cut off grade used at Alamo Dorado is 54 g/t silver equivalent grade. The metallurgical recoveries for gold and silver are calculated for each block using the following formulae:

Silver recovery = 0.95 — 5 / silver grade (g/t) – 0.0005 * Copper grade (ppm)
Gold recovery = 0.95 — 0.001 / gold grade (g/t) – 0.0005 * Copper grade (ppm)

     For all ores at Manantial Espejo the metallurgical recovery of the plant was assumed to be 93.57% for silver and 94.25% for gold. Payable amounts in the doré product of the mine are assumed to be 99.75% for silver and 98.87% for gold. The cut off grade applied for all open pit ores was 73 g/t. The nominal cutoff used to define underground Maria longhole stoping ore was 160gpt AgEq. The nominal cutoff used to define underground Maria and Melissa shrinkage stoping ore was 194gpt AgEq. The nominal cutoff used to define underground Concepcion cut and fill stoping ore was 210gpt AgEq. In all underground reserves, stoping blocks were visually defined using the cited cutoffs with a long section display of silver equivalent grade. However, once the stopes were defined, all recovered material inside of the stopes was defined as ore, regardless of grade. In all cases, the value ratio used to determine silver equivalency was 59.787. This ratio and the cutoffs were determined by the same method as in the feasibility study, using feasibility costs, payables, taxes, royalties, and metallurgical recoveries. However, all of the input values were revised to match the final results of the feasibility, with the exception of gold and silver sales prices, which were $525 and $9.00 respectively.

     Although Pan American believes that its reserve and resource estimates will not be materially impacted by external factors such as metallurgical, safety and environmental, permitting, legal, taxation and other factors disclosed in this Annual Information Form, there can be no assurance that they will not be impacted. There are numerous uncertainties inherent in estimating mineral reserves and resources. The accuracy of any reserve and resource estimation is the function of the quality of available data and of engineering and geological interpretation and judgment. Results from drillings, testing and production, as well as a material change in metals prices or a change in the planned mining method, subsequent to the date of the estimate, may justify revision of such estimates.

A. OPERATING MINES

(i) Quiruvilca Mine

     Ownership and Property Description

     The Quiruvilca mine is owned and operated by Pan American Silver S.A. Mina Quiruvilca, a company in which the Company, indirectly through its subsidiaries, owns 100% of the outstanding voting shares and 99.93% of the total outstanding equity. Pan American Silver S.A.C. Mina Quiruvilca and Cia Minera Huaron merged to form the new Pan American Silver S.A. Mina Quiruvilca effective January 2006.

     The Quiruvilca mine is an underground mine located in the District of Quiruvilca, Province of Santiago de Chuco, Department of La Libertad in northwest Peru. The Quiruvilca mineral property consists of 152 mining concessions covering 1,287 hectares. On March 25, 2004, Mina Quiruvilca sold 6,839 hectares of mining concessions and surface rights in the vicinity of Quiruvilca mine to Barrick for $3,582,575 and for the assumption of $67,425 of payments owing in respect of these mining concessions. All issued permits and licences required for the conduct of Quiruvilca mining operations are currently in good standing, however the mine is awaiting an Industrial Water Discharge Authorization to be granted by the General Health Division of the Health Ministry.

     Location, Access, Climate and Infrastructure

     The Quiruvilca mine lies in the Andes mountain range above the tree line located 76 kilometres east of the coastal city of Trujillo. Elevations in the immediate area of the mine range from 3,450 metres to 4,075 metres above

sea level. Access to the Quiruvilca mine is by a 137 kilometre all weather road east from the city of Trujillo. The first 65 kilometres of the road are paved and the remaining 72 kilometres consist of a gravel road. The gravel portion of the road is currently being upgraded and asphalted working from the mine down towards the presently paved portion of the road. Pan American paid for a small portion of the road upgrade costs near the Quiruvilca mine with the rest of the road work upgrade being paid for by Barrick. Trujillo is connected to Lima by a paved all-weather highway.

     The relief at the mine site is hilly and uneven with local slopes of more than sixty degrees, typical of the Peruvian Andes. Natural vegetation is mainly grasses which form meadows. These meadows have permitted development of varied livestock operations. The climate at the mine site is classified as “cold climate” or “boreal”. Average minimum and maximum temperatures in the region range from 5.7 to 14.8 degrees Celsius. One of the characteristics of this climate is wet summers (highest rainfall occurs from January to April) and dry winters. The Quiruvilca mine operates throughout the entire year.

     The primary source of power for the Quiruvilca mine is the Peruvian national power grid via a 138kV line from the city of Trujillo to the Motil substation. A 33kV line connects the mine site to the Motil substation. Pan American owns and operates a diesel generating system, which provides a back up source of power for the Quiruvilca mine.

     Pan American is permitted to pump water from the Los Angeles Lake, to the east of the Andean divide to two dams east of the town of Quiruvilca as well as from other local rivers and streams in the area. Process water is drawn from these dams.

     Peru’s economy is dependent on mining and there is a sufficient local source of mining personnel and related infrastructure.

     Royalties and Encumbrances

     To the best of Pan American’s knowledge, the Quiruvilca property is not subject to any royalties or encumbrances other than the mining royalty tax described under “Quiruvilca Mine - Taxation” below.

     In October 2003, the Peruvian government passed legislation requiring active mining operations to file closure plans within twelve months of the date of passage of the legislation. Administrative rules associated with this legislation which lay out detailed closure requirements, including bonding and tax deductibility of reclamation and rehabilitation expenses, were promulgated in October 2005. Pursuant to these rules detailed closure plans and cost estimates for each of Pan American’s Peruvian operations were compiled by a certified third party consultant and submitted by October 2006, and are awaiting review by the relevant Peruvian authority.

     Quiruvilca’s largest liability relates to its future closure and remediation. In connection therewith, the Company has estimated the present value of expenditures required for future reclamation and asset retirement at the Quiruvilca mine to be $15.6 million. In each of 2005 and 2006, $0.8 million was spent on reclamation activities.

     Taxation

     The principal taxes applicable in Peru affecting Pan American include income tax, employee profit sharing taxes, annual fees for holding mineral properties, various payroll and social security taxes and a refundable value added tax.

     In June 2004, Peru’s Congress approved a new bill that allows royalties to be charged on mining projects. These royalties are payable on Peruvian mine production at the following progressive rates: (i) 1.0% for companies with sales up to $60 million; (ii) 2.0% for companies with sales between $60 million and $120 million; and (iii)

3.0% for companies with sales greater than $120 million. This royalty is a net smelter returns royalty, which cost is deductible for income tax purposes. The 1% royalty on Quiruvilca’s production amounted to approximately $0.7 million in 2006, $0.2 million in 2005 and $0.1 million in 2004.

     The Quiruvilca operation generated income tax provisions of approximately $7.6 million, $0.9 million and $nil in 2006, 2005 and 2004 respectively. In addition, employee profit sharing taxes of $2.2 million, $0.03 million and $nil were generated in 2006, 2005 and 2004, respectively.

     History

     Mineralization was first reported in the area of the Quiruvilca mine in 1789. Small-scale silver mining in the area was carried on from the 1870’s until 1924. Between 1924 and 1925, Northern Peru Mining and Smelting Co. (“NPMS”), the predecessor to Mina Quiruvilca, which was formed by ASARCO, acquired certain mining concessions in the area and began mining operations. The operation was shut down in 1931. The Quiruvilca mine was re-opened in 1940 and has been in operation since that time. Since 1940 NPMS claimed additional mineral concessions in the area and purchased several adjacent mining concessions as well as surface and water rights in the area.

     Initially, mining by NPMS focused on the copper bearing veins in the Enargite Zone (as defined below) but gradually focus was shifted to veins in the Zinc-Lead Zone (as defined below). In March 1967, the mill started to treat complex ores producing copper, lead and zinc concentrates.

     In August 1995, Pan American acquired 80% of the outstanding voting shares (representing a 53.3% total equity interest) in Mina Quiruvilca from NPMS, and between September 1995 and March 1996, it increased its interest in Mina Quiruvilca to 100% of the outstanding voting shares and 99.7% of the total outstanding equity.

     Geology and Mineralization

     The Quiruvilca mine is located at the west side of the Western Cordillera within the eastern edge of a major sequence of volcanic rocks, interpreted as part of the Calipuy Volcanic Formation of Mid-Miocene age. This volcanic formation, with a thickness of about 2,000 metres, consists of andesite flows and flow breccias inter-layered with thin basalt flows and occasional tuffaceous lacustrine sediments.

     The mineralization at Quiruvilca is contained in a series of narrow veins filling fractures and faults. Over 130 veins have been identified in the mine area. At least three-quarters of these veins have been in production at some point in time. Although narrow, the veins at Quiruvilca tend to have an extensive lateral and vertical continuity with abundant splits, cymoid loops, pinch and swell structures. In some places, the veins show some thick ore shoots connected to thinner sub-economic to non-economic zones. The width varies from up to two metres in the central zone to stringers. The average width of veins currently being mined is 0.56 metres and the average dip of the veins is 70⁰.

     The mineralization exhibits strong metal zoning. The central copper zone, some 700 metres by 2,800 metres in area, consists of predominately enargite-pyrite, with lesser chalcopyrite, tennantite, tetrahedrite, sphalerite and galena (the “Enargite Zone”). The Enargite Zone is surrounded by a relatively narrow transition zone of tennantite, tetrahedrite, sphalerite and galena (the “Transition Zone”). The Transition Zone is in turn surrounded by a zinc-lead zone of predominately sphalerite and galena, which extends some 500 metres beyond the Transition Zone (the “Zinc-Lead Zone”). In recent years some 70% of the Quiruvilca mine’s production has come from the Zinc-Lead Zone. An outer zone consists of stibnite, arsenopyrite and pyrite.

     Exploration, Drilling, Sampling and Analysis

     Exploration at the Quiruvilca property is conducted using a combination of diamond drilling and underground drifting. Two to three diamond drills are in continuous operation at the property, drilling holes between 50 and 350 metres in length. This is generally followed by underground drifting and cross-cutting at 70 metre spacing. During 2006, 10,989 metres of drilling was done, along with 3,774 metres of drifting for reserve delineation and access for mining.

     Each diamond drill core is split in half, with one half sent for assaying and one half retained in a secure on-site facility. The veins in the cross-cuts are channel sampled, and a two to three kilogram sample is sent for analysis.

     Assaying is done at Quiruvilca’s laboratory. The laboratory conducts a routine internal quality assurance/quality control (“QA/QC”) program that includes external check samples and the routine submission of standards.

     Additionally, there is a QA/QC program supervised by the geology department, which includes the submission of at least 1 certified standard and blank per day as well as tertiary lab check assays on 2-5% of the samples and 1-2% of internal check samples.

     All sampling, whether diamond drilling or channel sampling, is done under the direct supervision of the Quiruvilca mine geology department.

     Reoriented exploration and development has provided additional positive results, such as the confirmation of the high silver grade Union Vein and high zinc grade Zoila Gata vein on the 340 and 400 levels, and diamond drilling of the Jose Godoy vein on the upper levels.

     Mineral Reserves

     The Company’s management estimates that proven and probable mineral reserves at the Quiruvilca mine as at December 31, 2006 are as follows:

Quiruvilca Mineral Reserves ^{1, 2, 3}

Reserve						Grams of Silver
Category		Tonnes				per Tonne				% Zinc				% Lead				% Copper
Proven			1,049,205				170				3.36				1.15				0.66
Probable			604,340				175				4.23				1.43				0.63
TOTAL			1,653,545				172				3.68				1.25				0.65

     Reconciliation of Mineral Reserves

     Mineral reserves are adjusted annually by the amount mined, by additions and deletions resulting from new geological information and interpretation and in connection with changes in operating parameters and metal prices. However, proven and probable mineral reserves are not usually revised in response to short-term cyclical price variations of metal markets. The following is a reconciliation of the proven and probable mineral reserves at Quiruvilca to December 31, 2006:

Reconciliation of Mineral Reserves at Quiruvilca

		Tonnes
Opening balance, December 31, 2005			1,504,925	1
Additions			518,735
Less Tonnes mined			<370,115>
Closing balance, December 31, 2006			1,653,545

     The Quiruvilca mine has proven and probable reserves which indicate a projected mine life of four years at current production rates. In addition, the mine holds a substantial amount of measured and indicated resources, which management of the Company believes could be, depending on metal prices and capital requirements, converted into proven and probable reserves, extending the mine life of the mine.

     Mineral Resources

     The Company’s management estimates that mineral resources at the Quiruvilca mine as at December 31, 2006 are as follows:

Quiruvilca Mineral Resources ^{1, 2}

Resource						Grams of Silver
Category		Tonnes				per Tonne				% Zinc				% Lead				% Copper
Measured			4,249,215				122				2.20				0.82				1.22
Indicated			637,920				187				4.40				1.58				0.85
Inferred			3,862,415				167				3.88				1.44				0.58

     Mining

     The Quiruvilca mine extends over an area that is four kilometres east/west by three kilometres north/south and from an elevation of 4,050 metres at the top of the mountain down to the 400 level (elevation 3,468 metres).

Access to the mine is from four adits driven into the side of the mountain at elevations ranging from 3,648 metres to 3,870 metres.

     Battery locomotives are used to haul ore and waste from the stopes and development headings to ore and waste passes. Ore from the upper levels of the mine is delivered to ore passes, which transfer it to the 220 main haulage level. Trolley locomotives with mine cars are used to transport ore from the ore passes on the 220 level to coarse ore bins at the crushing plant.

     A 590 metre long, 76 cm wide conveyor is used to transport ore and waste from below the 220 level to a surface bin at the 220 level. The conveyor belt has a capacity of 150 tonnes per hour. The mine completed the extension of this conveyor belt down to the 340 level in August of 2005. Ore from the 400 level will be transported up to the 340 level in order to utilize the conveyor belt for haulage to surface. Ore from the 400 level Luz Angelica vein system will be trucked up a ramp, and ore from the Zoila Gata vein system will be hoisted via an inclined shaft. The haulage and access systems for the 400 level were started in 2006 and are expected to be completed in 2007.

     Of the 29 veins presently being mined, ten contributed approximately 70% of the production during 2006 calendar year. These ten veins average 0.73 metres in width.

     There are, on average, 60 active stopes at any given time, all using the cut and fill mining method. Approximately one-third of the stopes are typically in the drilling and blasting phase, one-third in the mucking phase and one-third in the filling phase at any given time. In stopes where hydraulic backfill is not available, or in places where the vein is very narrow and would not otherwise be economic, resueing is employed with the waste rock remaining in the stope as backfill. In all other stopes, tailings are poured into the stope hydraulically to serve as backfill.

     Tailings from the mill are directed to the hydraulic fill plant located near the Santa Catalina tailings pond. The fine fraction is removed with cyclones, and the coarse fraction is directed to the storage tanks in the hydraulic fill plant. The sand-fill is pumped 2,700 metres to the Luz Angelica distribution plant, or a further 1,600 metres to the Central distribution plant through a 76 millimetre HDPE line. The distribution plants are equipped with 170 cubic metre storage tanks. When backfill is required underground, the fill is re-slurried and pumped underground. The monthly hydraulic backfill volume employed at the mine averages 5,200 cubic metres.

     Milling

     The mill flowsheet consists of three-stage-crushing, ball mill grinding and selective flotation of the ore to produce copper, lead and zinc concentrates, followed by thickening and filtering of the concentrates.

     Throughout 2006, daily treatment capacity was 1,287 tonnes, with an operative mill working six days a week. In 2006, the concentrator plant processed 370,115 tonnes of ore and is expected to process approximately the same amount of ore in 2007.

     In 2006, Quiruvilca continued to generate positive cash flow and income, with recorded cash costs of negative $0.04 per ounce with the negative cash costs being caused by the high base metal prices, as Pan American reports cash costs net of base metal credits.

     Environment

     Environmental regulations are evolving in Peru and it is expected that these requirements will eventually reach North American standards. As part of the developing regulatory framework, in 1995 mining companies were required to submit environmental evaluation reports (“EVAP”) summarizing general environmental conditions at

their mines and environmental remediation plans. Mina Quiruvilca filed an evaluation report with the MEM in 1995 and filed a Program for Environmental Remediation and Management (“PAMA”) in 1996 in compliance with Peruvian regulations. The PAMA addressed, among other things, stabilization of tailings impoundments, tailings reclamation, mine acid water neutralization and other effluent treatment, revegetation and a contingency plan. For each of these issues, Pan American provided an implementation schedule and estimates of capital expenditures. The PAMA was approved by the MEM in 1997 and the terms of the PAMA were to have been completed by March 2002. However, based on discussions with the MEM auditors, some projects were re-classified as more appropriate for inclusion in a final closure and remediation plan.

     Quiruvilca’s PAMA-related expenditures for the years 1997 to 2005 were audited by independent consultants and reviewed by Peruvian environmental regulators. Overall expenditures were greater than budgeted and considerably more than the 1% of gross sales required under Peruvian law. While the PAMA process defined remediation projects, expenditures and time frames to achieve compliance primarily with respect to water quality, it explicitly excluded closure projects, and in many cases did not fully consider remediation of historic liabilities, whether caused by third parties or predecessor companies.

     In October 2003, the Peruvian government passed legislation requiring active mining operations to file closure plans within twelve months of the date of passage of the legislation. Administrative rules associated with this legislation which laid out detailed closure requirements, including bonding and tax deductibility of reclamation and rehabilitation expenses, were promulgated in October 2005. These rules required that detailed closure plans and cost estimates be compiled by a certified third party consultant by October 2006. Quiruvilca’s original closure plan was filed in early March 2004.

     In September of 2006 Pan American submitted a comprehensive closure plan for the Quiruvilca Mine to the MEM in accordance with the ministry’s regulations. The closure plan was prepared by third party consultants registered with the Peruvian authorities as qualified to present closure plans to the Ministry of Energy and Mines. The closure plan includes a summary of the proposed closure scheme for each of the major areas of impact such as mine water, tailings areas, wasterock dumps, plant site infrastructure, and underground mines. A detailed cost estimate was prepared based on Pan American’s and the consultant’s shared experience with closure works over the past 12 years at Quiruvilca and experience with other projects in Peru. As required by the ministry the costs were summarized in three phases; concurrent closure, final closure and post closure.

     The total estimated cost for the MEM closure plan for Quiruvilca was $14.3 million. This cost estimate serves as the basis for the calculation of the financial guarantee required by the ministry’s closure plan regulations. In the case where the final closure solution for a specific facility or area of the mining operation was not precisely definable, due to questions of the technical feasibility of different alternatives or the potential for yet evaluated alternatives, a base case cost was estimated for the closure item. This cost estimate was used to avoid any potential over commitment for the payment of the financial guarantee. For the purpose of the corporate estimate of closure and reclamation costs, the uncertainty of the closure solution was managed with the application of probabilities to potential closure scenarios. The current present value of the closure expenditures included the provision for potentially higher costs for construction of a soil cover over the operating tailings facility and alternative potential solutions for closing the underground mine and post closure mine water treatment. The current estimated present value of expenditures is $15.6 million.

     The most significant environmental issues currently associated with the Quiruvilca mine are metal-laden acid water discharge from the mine, acid rock drainage from the mine’s tailings deposit areas and the containment and stability of mine tailings ponds. All acid water discharge from the Quiruvilca mine is either treated at the mine’s High Density Sludge plant or by passive systems. During 2006, all effluents at the monitoring point met the applicable discharge limits.

     Health and Safety

     All Quiruvilca employees are required to undergo safety training and all new underground employees are required to undergo training prior to being assigned to their first position. In addition, supervisors and workers including contractors, are attending the Centromin “Basic Mining Concepts and Safety” training in Lima. This training focuses on proper mining methods with an emphasis on safety. Safety training continued through 2006 and will continue on through 2007. A formal safety audit was conducted by the Company’s Director of Safety and Training at the Quiruvilca Mine in 2006.

     Capital Expenditures

     Since 1995, Pan American has undertaken a program of capital and non-operating expenditures at the Quiruvilca mine to improve its operations, ensure compliance with its PAMA and reduce operating costs.

     During 2006, capital expenditures were approximately $2.7 million and consisted of: (i) equipment replacement and improvements totalling $0.5 million; (ii) mine development and deepening to the 400 level totalling $0.5 million; (iii) definition drilling in the north zone of the mine totalling $0.9 million; and (iv) ongoing closure expenditures totalling $0.8 million.

     Pan American has budgeted $4.8 million for 2007 capital expenditures at the Quiruvilca mine consisting primarily of $1.7 million for mine development and equipment, $0.9 million for mine equipment, $1.0 million for expansion of the Santa Catalina tailings dam, and $0.3 million for ongoing reclamation.

     Marketing

     The principal products from the Quiruvilca mine are zinc, and silver-rich lead and copper concentrates. All of these concentrates are sold under arm’s length contracts to metals trading companies or integrated mining and smelting companies. Under the terms of all of its sales contracts, Mina Quiruvilca receives payment for an agreed percentage of the silver, lead, zinc, or copper contained in the concentrate, after deductions for smelting and refining costs.

     In 2006, zinc concentrate was sold to Glencore International AG under a contract which runs until 2009.

     Currently, the Quiruvilca mine sells its lead concentrate to Glencore pursuant to a contract with fixed terms through to the end of 2007.

     A contract for the sale of copper concentrate was renewed with Doe Run Peru for 2007 and 2008. Spot sales were made to BHL, Traxys and Xstrata Canada during 2006.

     During 2006, the revenue per type of concentrate produced at the Quiruvilca mine was as follows:

										Average Sales Price
		Revenue1				Tonnes				per Tonne
Zinc Concentrate		$18.8 million					15,949			$	1,179
Lead Concentrate		$8.2 million					6,372			$	1,287
Copper Concentrate		$23.2 million					6,705			$	3,460

     During 2005, the revenue per type of concentrate produced by the Quiruvilca mine was as follows:

										Average Sales Price
		Revenue1				Tonnes				per Tonne
Zinc Concentrate		$6.9 million					18,011			$	381
Lead Concentrate		$3.0 million					3,237			$	919
Copper Concentrate		$12.3 million					6,681			$	1,838

     The zinc concentrates produced by the Quiruvilca mine are highly marketable as they contain high zinc grade, low levels of impurities and low silver content. The lead concentrates have arsenic and antimony as impurities but are attractive to lead smelters due to their high lead, silver and gold content. Although the silver-rich copper concentrate produced by the Quiruvilca mine contains arsenic and antimony impurities, it has maintained marketability due to the high amount of silver contained in the concentrate. To date, Pan American has been able to secure contracts for the sale of the Quiruvilca concentrates.

(ii) Huaron Mine

     Ownership and Property Description

     As of January 2006, the Huaron mine is owned and operated by Pan American Silver S.A. Mina Quiruvilca, a company in which the Company, indirectly through its subsidiaries, owns 100% of the outstanding voting shares and 99.93% of the total outstanding equity. Pan American Silver S.A.C. Mina Quiruvilca and Cia Minera Huaron merged to form the new Pan American Silver S.A. Mina Quiruvilca effective January 2006.

     The Huaron mine is an underground silver mine located in the Department of Pasco, Province of Pasco, District of Huayllay in central Peru, 320 km northeast of Lima. The property consists of exploitation claims covering approximately 17,075 hectares, approximately 40,000 hectares of exploration claims and 473 hectares of surface rights and a lease over 178 hectares of surface rights covering the main workings. To the Company’s knowledge, all permits and licences required for the conduct of mining operations at Huaron are currently in good standing other than the Use of Explosives Authorization which is subject to a regularization proceeding before the Ministry of Energy and Mines.

     Location, Access, Climate and Infrastructure

     The Huaron mine lies on the eastern flank of the western branch of the Andean mountain range from an elevation of 4,250 metres to 4,800 metres above sea level. Access to the Huaron property is by a continuously maintained 285 kilometre paved highway between Lima and Unish and a 35 kilometre road between Unish and the Huaron property. A program by the Peru government to upgrade the road to a paved highway between Unish and the Huaron property is partially complete.

     The relief at the mine site is hilly and uneven with local slopes of more than sixty degrees. Natural vegetation is mainly grasses, forming meadows. These meadows have permitted development of varied livestock operations. The climate at the mine site is classified as “cold climate” or “boreal” with average annual temperatures ranging from three to ten degrees Celsius. The Huaron mine operates throughout the entire year.

     The primary source of power for the Huaron mine is the Peruvian national power grid. The supply of water has been abundant and is provided by local lakes and rivers.

     Peru’s economy is dependent on mining and there is a sufficient local source of mining personnel and related infrastructure.

     Royalties and Encumbrances

     To the best of Pan American’s knowledge, the Huaron property is not subject to any royalties or encumbrances other than the mining royalty tax described under “Huaron Mine – Taxation” below.

     Huaron’s future environmental liabilities at December 31, 2006 have been estimated by the Company at $9.2 million. See “Quiruvilca Mine – Royalties and Encumbrances” for a description of changes in Peruvian mine closure legislation.

     Taxation

     The principal taxes of Peru affecting the Huaron mine include income tax, employee profit sharing taxes, annual fees for holding mineral properties, various payroll and social security taxes, refundable value added tax and Peruvian mining royalty tax.

     The Huaron operation generated income tax provisions of approximately $10.2 million, $1.1 million and $1.7 million in 2006, 2005 and 2004 respectively. In addition, employee profit sharing taxes of $2.7 million, $0.3 million and $0.5 million were generated in 2006, 2005 and 2004, respectively.

     Huaron’s revenue for 2006 was approximately $70.6 million. A 1% royalty was payable on the first $60 million, while the balance of the revenue attracted a 2% royalty. The total royalty tax on Huaron’s production amounted to approximately $1.0 million in 2006, $0.3 million in 2005 and $0.2 million in 2004. See “Quiruvilca Mine – Taxation” for a discussion of the Peruvian mining royalty tax.

     History

     The Huaron mine is an underground mine with narrow and wide veins of silver-rich base metal sulphides, as well as replacement mineralization in conglomerates and dissemination in sediments. The mine, mill and supporting villages were originally built and operated by a subsidiary of the French Penarroya company from 1912 to 1987. In 1987 the mine was sold to Mauricio Hochschild and Cia Ltda. Prior to its acquisition by Pan American, approximately 22 million tonnes of silver-rich base metals sulphide ore were mined from the Huaron property. Silver was the main constituent, contributing about 49% of the historic sales value, with zinc, lead and copper, 33%, 15% and 3% respectively, making up the remainder. Ore from the mine was processed on-site by crushing, grinding, and differential floatation to produce copper, lead and zinc concentrates.

     In April, 1998, a portion of the lakebed of nearby Lake Naticocha collapsed and water from the lake flowed into the adjacent Animon mine (operated by an unrelated company) and, through interconnected tunnels, the water entered and flooded the Huaron mine, causing its closure.

     After the April 1998 flooding, the Huaron mine operations were shut down, the labour force was terminated, the village closed and work was undertaken to clean up the flood damage, drain the workings and prepare for an eventual restart of production. The water level in the lake which provided the source of floodwater is maintained well below the level where it flooded into the old workings and the Company does not expect a threat of further flooding. The Animon mine, in accordance with a settlement agreement reached with Cia. Minera Huaron S.A. in September 2000, constructed a channel to route water around the lake to provide water for the Huaron’s mine operation and to reduce the water in upstream lakes to prevent agricultural flooding which had created local social pressures.

     Geology and Mineralization

     The main lithology in the Huaron area is a sequence of continental “redbeds” consisting of interbedded sandstones, limestones, marls, conglomerates, breccias and cherts of the Abigarrada and Casapalca Formations of Upper Cretaceous to Lower Tertiary age. These rocks unconformably overlay massive marine limestones of the Upper Cretaceous Jumasha Formation. To the west of the mine a series of andesites and dacites of the mid to lower Tertiary Calipuy Formation outcrop. A series of sub-vertical porphyritic quartz monzonite dykes, strike generally north-south and cut across the mine stratigraphy.

     The rocks in the central part of the mine and at lower elevations are principally thinly bedded marls and sandstones known as the lower redbeds. In the eastern side of the mine the upper redbeds occur. The upper section of these rocks consists of calcareous Sevilla chert that overlies sandstones and marls. The bottom of this sequence consists of the Barnabe quartzite conglomerate. In the western side of the mine the stratigraphy consist of a series of interbedded conglomerates (San Pedro) and sandstones. The conglomerate contains poorly sorted limestone and quartz clasts in a sandy matrix.

     The Huaron mine is within an anticline formed by east-west compressional forces. The axis of the anticline is approximately north-south, gently plunging to the north. There are two main fault systems: (i) north-south striking thrust faults, parallel to the axis of the anticline; and (ii) east-west striking tensional faults. The intrusives strike in two principal directions N70°E and S10°E. Most of the area is covered with recent soils except where the more resistant cherts and conglomerates form ridges parallel to the flanks of the anticline. These outcrops are discontinuous and frequently offset by the crosscutting east-west faults.

     Huaron is a polymetallic deposit (hosting silver, lead, zinc and copper) consisting of mineralized structures probably related to Miocene monzonite dykes principally within but not confined to the Huaron anticline. Mineralization is encountered in veins parallel to the main fault systems, in replacement bodies associated with the calcareaous sections of the conglomerates and other favourable stratigraphic horizons, and as dissemination in the monzonitic ingrusions at vein intersections.

     The first pulse of mineralization was associated with the emplacement of intrusive bodies and subsequent opening of the structures, during which zinc, iron, tin, and tungsten minerals were deposited. This was followed by a copper, lead and silver rich stage, and finally by an antimony/silver phase associated with quartz.

     More than 95 minerals have been identified at Huaron with the most important economic minerals being tennantite-tetrahydrite containing most of the silver, sphalerite and galena. The principal gangue minerals are pyrite, quartz, calcite and rhodochrosite. Enargite and pyrrhotite are common in the central copper core of the mine and zinc oxides and silicates are encountered in structures with deep weathering. Silver is also found in pyrargyrite, proustite, polybasite and pearceite.

     There is a definite mineral zoning at Huaron and the mine has been divided into seven separate zones. There is a central copper core (Zone 5) where the principal economic mineral was enargite. The structures contain copper with pyrite and quartz. This area was extensively mined by previous operators but, because of the high arsenic and antimony content and poor metal recoveries, mining in this area could be problematic. To the east and west of the central core are Zones 2, 3 and 4 where silver, lead and zinc are found in carbonates, principally calcite and rhodochrosite. Zone 1 to the north of the central core contains silver, lead and zinc associated with pyrite. Zone 6 is along the west side of the axis of the anticline and south of Zone 2 is principally lead and zinc with lower silver values within carbonates. Zone 7 is a narrow band running north-south along the general axis of the anticline and to the south of Zone 3 and contains principally sphalerite and sulfosalts with rhodochrosite.

     The central core of the district has adularia-sericite alteration overprinted with strong silicification and epidote-pyrite. This core is surrounded by a zone containing epidote-pyrite-quartz that grades outwardly to a zone containing chlorite and magnetite. The mineralized structures are concentrated in the central core of the district but important structures continue into the outer zones.

     Exploration, Drilling, Sampling and Analysis

     Exploration at Huaron is conducted using a combination of underground drilling and drifting. Generally, underground drillholes that intersect promising ore grade mineralization are followed up by drifting for resource and reserve definition. During 2006, 11,755 metres were drilled using three drill rigs. In addition, 6,256 metres of underground drifting were completed for resource and reserve definition.

     Drill core is split with half remaining on-site for further reference. Assaying, for both drill samples and underground channel samples, is done at the mine laboratory. The quality assurance/quality control (QA/QC) program includes sample checks performed at an outside lab and the submission of standards to the mine lab.

     Additionally, there is a QA/QC program supervised by the geology department. It includes the submission of at least 1 certified standard and blank per day as well as tertiary lab check assays on 2-5% of the samples and 1-2% of the check samples.

     All of the geologic activities, including sampling, are conducted under the direct supervision of the Huaron Chief Geologist.

     Strategic Restructuring

     In the fall of 2003, Pan American initiated a technical and economic evaluation to determine the benefits of re-engineering the main haulage system at the Huaron mine. As a result of that evaluation, the haulage system is being changed from diesel trucks to electric locomotives. In addition, an evaluation is underway to determine whether to use the existing mine shafts (not operative) to reduce mine haulage costs.

     Mineral Reserves

     The Company’s management estimates proven and probable mineral reserves at the Huaron mine, as at December 31, 2006 are as follows:

Huaron Reserves ^{1, 2}

Reserve						Grams of Silver
Category		Tonnes				per tonne				% Zinc				% Lead				% Copper
Proven			4,638,300				184				3.16				1.57				0.31
Probable			4,048,556				183				3.21				1.79				0.21
Total			8,686,856				184				3.18				1.67				0.26

     Reconciliation of Mineral Reserves

     Mineral reserves are adjusted by the amount mined, by additions and deletions resulting from new geological information and interpretation and in connection with changes in operating parameters and metal price assumptions. However, proven and probable mineral reserves are not usually revised in response to short-term cyclical price variations of metal markets. The following is a reconciliation of the proven and probable mineral reserves at Huaron to December 31, 2006:

Reconciliation of Mineral Reserves at Huaron

		Tonnes
Opening balance, December 31, 2005			7,354,026	1
Additions			2,026,115
Less tonnes mined from reserves			<693,285>
Closing balance, December 31, 2006			8,686,856

     The Huaron mine has proven and probable reserves which indicate a projected mine life of at least ten years at current production rates.

     Mineral Resources

     The Company’s management estimates that mineral resources at the Huaron mine, as of December 31, 2006, are as follows:

Huaron Resources^1,2

Resource						Grams of Silver
Category		Tonnes				per tonne				% Zinc				% Lead				% Copper
Measured			1,581,966				166				3.68				2.02				0.45
Indicated			1,168,964				174				3.83				1.86				0.55
Inferred			3,457,751				182				3.03				1.69				0.30

     Mining

     The Huaron mine is located at an elevation of 4,250 metres above sea level to 4,650 metres above sea level. Pan American’s mining activities will extend over an area of two kilometres by two kilometres.

     The main mine access is via a four metre by four metre ramp which is used for truck haulage and electric locomotive haulage of ore out of the mine. There are two existing shafts on the property but these have not been used since the late 1980’s. A thorough analysis of the cost to refurbish shaft D has been completed and subject to confirmation of a positive economic analysis it will be refurbished to reduce haulage costs.

     In 2006, stopes from 32 different veins (averaging 2.38 metres wide) were mined with approximately 77 stopes active at any time. During 2006, the mine mechanized some of the stopes by introducing small scoop trams. This had the effect of increasing productivity and by the end of the year only 35 stopes were required to maintain production. The mining method is 100% cut-and-fill using mill tailings as the backfill material.

     Rehabilitation of the 500 level was completed in April 2005 in order to change the ore haulage system from commercial 12 cubic metre-capacity trucks to electric locomotives for the ore transport. This will continue to result in savings in operating costs, and provide access to new zones with ore reserves. Evaluation is currently underway to rehabilitate and use existing mine shafts to replace part of the existing truck haulage system.

     During 2006, 263,357 tonnes of ore were extracted from the 500 and 600 levels. It is expected that the Company will continue to extract ore from these same levels in 2007.

     During 2006, the mine started the development of a new conveyorway ramp from the current bottom of the mine (250 level) to the 180 level in the north zone. This work will deepen the north zone of the mine by 70 metres and provide access to known vein extensions that have not been previously mined.

     Milling

     During 2005, the concentrator plant processed 639,849 tonnes of ore in comparison to 635,845 tonnes processed in 2004. The plant has operated basically the same circuits of crushing, ball mill grinding, selective flotation and filtering since it started in 2001. In 2006 approximately 693,285 tonnes of ore was processed.

     Environment

     Before Pan American acquired its interest in the Huaron Mine, Minera Huaron had filed a program of environmental remediation and management (“PAMA”) with the government on July 26, 1996 in compliance with Peruvian regulations. The PAMA addressed, among other things, stability of tailings impoundments, water quality and the fact that liquid effluents from the mine exceeded certain permissible levels of metals, as well as the required revegetation of a historic tailings area near the adjacent town. The PAMA set forth an implementation time line of nine months for Huaron to make certain expenditures to address the environmental issues raised. In January of 1997 and March of 1998, the Minister of Energy and Environment consented to the modification of certain expenditures under the PAMA and an extension of the implementation time line.

     As a result of the 1998 flood of the adjacent Animon mine, waters inundated portions of the Huaron Mine, causing the closure of the mine. For this reason, Minera Huaron was not able to satisfy all of its obligations under the PAMA in accordance with the established implementation time line. Given the magnitude of the incident at the Huaron mine, in December 2001, the Minister of Energy and Environment granted further modification of the PAMA and an extension of the time for implementation. At the same time, the Minister of Energy and Environment approved a special program of environmental management (“PEMA”) to continue until the end of 2005.

     Minera Huaron completed requirements under the PAMA program, and compliance and expenditures have been audited by third party consultants. Under the PEMA program, work was focussed on two projects: remediation of water quality exiting the old workings and closure of the historic Huayllay tailings impoundment. Remedial work started on the Huayllay tailings impoundment in 2004 and was completed in 2005. In October 2003, the Peruvian government passed legislation requiring active mining operations to file closure plans within six months of the date of passage of the legislation. Administrative rules associated with this legislation which laid out detailed closure requirements, including bonding and tax deductibility of reclamation and rehabilitation expenses, were promulgated in October 2005. These rules require that detailed closure plans and cost estimates be compiled by a certified third party consultant by October 2006. Huaron’s original closure plan was filed by mid-year 2004.

     In August of 2006 Pan American submitted a comprehensive closure plan for the Huaron Mine to the MEM in accordance with that ministry’s regulations. The closure plan was prepared by third party consultants registered with the Peruvian authorities as qualified to present closure plans to the Ministry of Energy and Mines. The closure plan includes a summary of the proposed closure scheme for each of the major areas of impact such as mine water, tailings areas, wasterock dumps, plantsite infrastructure, and underground mine. A detailed cost estimate was prepared based on Pan American’s and the consultant’s shared experience with closure works over the past 12 years and experience with other projects in Peru. As required by the ministry the costs were summarized in three phases; concurrent closure, final closure and post closure.

     The total estimated cost for the MEM closure plan for Huaron was $8.5 million. This cost estimate serves as the basis for the calculation of the financial guarantee required by ministry’s closure plan regulations. In the case where the final closure solution for a specific facility or area of the mining operation was not precisely definable, due to questions of the technical feasibility of different alternatives or the potential for yet evaluated alternatives, a base case cost was estimated for the closure item. This cost estimate was used to avoid any potential over commitment for the payment of the financial guarantee. For the purpose of the corporate estimate of closure and reclamation costs, uncertainty of closure solution was managed with the application of probabilities to potential closure scenarios. The current present value of closure expenditures at Huaron were estimated including a provision for the probability of increased costs for the construction of soil cover over the tailings area. The current present value of expenditures is $9.2 million.

     The most significant environmental issues currently associated with the mine are metal-laden waters discharged from the mine, localized areas of acid rock drainage from the mine’s tailings deposit areas and the containment and stability of the active tailings ponds. During 2004 and 2005, water quality at the compliance point has met pH standards and a majority of metal compliance standards. The closure planning process, now underway with the support of independent consultants, will define closure and mitigation options for improving water quality exiting the site. The site water quality at Huaron has improved due to the expansion and modification of the effluent management and treatment system. Water from the tailings facility and the upper levels of the mine are now combined with the flows from the lower level of the mine. The flows are directed via a borehole from the upper level to the lower level of the mine where they are directed to a lime addition and sedimentation treatment system. Following the implementation of this change the water quality at the downstream discharge point is at levels permitted by Peruvian regulations. The sampling program is continuing to monitor the expected improvement in water quality.

     Health and Safety

     Following its purchase of the mine, Pan American implemented a modified version of the third party safety and training program for employees and contractors used successfully at its Quiruvilca Mine. In April of 2006 a formal safety audit was conducted by a third party consultant and the Director of Safety and Training at the Huaron Mine. All Huaron Mine employees are required to undergo safety and environmental training and all new underground employees are required to undergo task specific training prior to being assigned to their first position. In addition, supervisors and workers attend the Centromin “Basic Mining Concepts and Safety” training in Lima. This training focuses on proper mining methods with an emphasis on safety. This training will continue through 2007.

     Capital Expenditures

     In 2006, capital expenditures at the Huaron mine were approximately $5.4 million and consisted primarily of: (i) equipment replacement and improvement totalling $1.8 million; (ii) mine development and deepening totalling $3.4 million; and (iii) ongoing closure expenditures totalling $0.2 million.

     Significant capital spending is expected at Huaron in 2007 as the Company invests in the deepening project. The budget for 2007 totals $12.3 million and includes: (i) mine capital amount of $6.2 million, an amount that includes the deepening to the 180 level and installation of a conveyor belt between 180 and 250 levels, and the rehabilitation and upgrading works needed to bring D shaft back into operation; (ii) diamond drilling totalling $1.3 million; (iii) process capital of $2.3 million primarily to provide additional backfill capacity and to raise the tailings dam; (iv) maintenance and other equipment repairs and improvement of $1.4 million; (v) safety and environmental of $0.3 million; and (vi) administration and information technology of $0.8 million.

     Marketing

     The products of value produced from the Huaron mine are silver rich zinc, lead and copper concentrates. All contracts are with arm’s length buyers. Huaron receives payment for an agreed percentage of the silver, lead, zinc or copper contained in the concentrates it sells after deduction of smelting and refining costs.

     During 2004, the existing zinc concentrate contract was modified to provide for the commitment for the sale of total production until 2008, then following that period a commitment for the sale of 60% of total zinc concentrate based on market benchmark terms until 2011. In 2005, following a tender process, Pan American reached an agreement with Votorantim and settled the terms for 40% of 2009 zinc production (the remainder of the unsold concentrate).

     In 2006 the copper concentrate contract with Doe Run Peru was extended until the end of 2008 with fixed terms.

     In relation to the lead concentrate, Pan American reached an agreement with Glencore in 2005 whereby 100% of 2006 and 2007 lead concentrate production would be sold to Glencore.

     In 2005 and 2006, the revenues per type of concentrate produced at the Huaron mine were as follows:

										Average Sales Price
2006		Revenue1				Tonnes				per Tonne
Zinc Concentrate		$23.2 million					24,975			$	929
Lead Concentrate		$17.1 million					17,002			$	1,006
Copper Concentrate		$31.3 million					6,716			$	4,661

										Average Sales Price
2005		Revenue1				Tonnes				per Tonne
Zinc Concentrate		$	7,208,913				23,182			$	311
Lead Concentrate		$	9,887,443				15,992			$	618
Copper Concentrate		$	17,770,711				7,470			$	2,379

     To date, Pan American has not had any difficulty in securing contracts for the sale of Huaron concentrates.

(iii) La Colorada Mine

     Ownership and Property Description

     Pan American Silver’s wholly-owned subsidiary, Pan American Mexico, owns and operates the La Colorada mine.

     The La Colorada property consists of six contiguous blocks of exploration permits and exploitation claims totalling approximately 2,230 hectares (approximately 1,189 hectares are designated by exploration permits and 1,041 hectares by exploitation claims). Three of the exploration permits are in the process of being converted to exploitation claim status. The property also consists of approximately 464 hectares of surface rights which cover the main mine workings and the mine’s ore zones.

     All permits and licences required for the conduct of mining operations at La Colorada are currently in good standing.

     A technical report on the La Colorada mine (the “La Colorada Report”) dated March 17, 2006 was prepared for Pan American in accordance with NI 43-101. The La Colorada Report was authored by Martin Wafforn P. Eng. and Michael Steinmann P. Geo., both of whom are Qualified Persons, as the term is defined in NI 43-101, and employed by the Company. The following summary of the La Colorada mine is primarily based on the La Colorada Report.

     Location, Access, Climate and Infrastructure

     The La Colorada mine is located in the Chalchihuites district in Zacatecas State, Mexico, approximately 156 kilometres northwest of the city of Zacatecas and 99 kilometres south of the city of Durango. The main municipality in the district is the city of Chalchihuites, 16 kilometres northwest of the La Colorada Mine, with a population of approximately 1,000. The district’s general coordinates are 23º, 23’ North Latitude and 103º, 46’ West Latitutde. The property is situated at elevations between 2,100 and 2,550 metres above sea level.

     The La Colorada mine is accessed primarily from the city of Durango by a continuously maintained 120 kilometre all-weather, paved, two lane highway (Highway 45) and a 23 kilometre public, all weather, gravel road. The mine is also accessible from the city of Zacatecas by similar types of roads.

     The physiography of the region around the mine site resembles a basin and range area with wide flat valleys and narrow relatively low mountains and ranges.

     The climate at the project site is arid to semi-arid. Vegetation typically includes mesquite and cactus. The rainy season is from July to September. Precipitation during this rainy season can be extreme and cause regional flooding and wash-outs. However, in general, precipitation in the area is quite low and the mine is able to operate year round.

     Electrical power is supplied from the Mexican national power grid that feeds the mine property distribution system. However, as a result of the heavy demands and use of the national power grid, which has caused random power outages at the mine, additional diesel generators will be installed to provide the additional power necessary for the expansion of the mine dewatering system.

     The existing water system at the La Colorada mine is currently supplied from an underground source. As permitted by Mexican law, underground water is pumped to surface head tanks for use in the mill process and for domestic services. Underground water is also pumped to a water treatment plant, which was constructed in 2002, to

provide potable water. Pan American estimates that the current volume of water supply meets the existing and planned future requirements of the project.

     There is a long history of silver mining in Zacatecas State and as a result there is adequate infrastructure and an experienced workforce in the area.

     Royalties and Encumbrances

     To the best of Pan American’s knowledge, the La Colorada property is not subject to any other royalties or encumbrances. La Colorada’s future environmental liabilities at December 31, 2006 have been estimated by the Company at approximately $5.4 million.

     Taxation

     The principal taxes of Mexico affecting the La Colorada operations include income tax, assets tax, annual fees for holding mineral properties, various payroll and social security taxes and a refundable value added tax. The La Colorada operations generated an income tax benefit of approximately $5.7 million in 2006 and $Nil for 2005 and 2004.

     History

     The production history of the Chalchihuites district began during pre-colonial times as artesanal mining for silver malachite. During the sixteenth century, the Spaniards founded the village of Chalchihuites and began intermittent exploitation of the mineral deposits in the area. By the nineteenth century, the Spanish operations achieved continuous silver production, which was interrupted by the Mexican War of Independence.

     In 1925, the Dorado family operated mines at two locations on the La Colorada property. From 1929 to 1955 Candelaria y Canoas S.A., a subsidiary of Fresnillo S.A., installed a 100 tonne per day flotation plant and worked the old dumps of two previous mines on the La Colorada property. From 1933 to the end of World War II La Compañía de Industrias Peñoles also conducted mining operations on a single breccia pipe on the property. From 1949 to 1993, Compañía de Minas Victoria Eugenia S.A. de C.V. operated a number of mines on the La Colorada property.

     In 1994, Minas La Colorada S.A. de C.V. (“MLC”) acquired the exploration and exploitation claims and surface rights of Compañía de Minas Victoria Eugenia S.A. de C.V. Until 1997, MLC conducted mining operations on three of the old mines on the La Colorada property. Production was at a rate of approximately 150 tonnes per day.

     Pan American acquired La Colorada in March 1998.

     Geology and Mineralization

     The La Colorada property is located on the eastern flanks of the Sierra Madre Occidental at the contact between the lower volcanic complex and the upper volcanic supergroup.

     The oldest rocks exposed in the mine area are Cretaceous carbonates and calcareous clastic rocks. Overlying the calcareous rocks is a conglomerate unit containing clasts derived mostly from the subadjacent sedimentary rocks. Most of the outcrop in the mine area is represented by intermediate to felsic volcanic rocks of the regional lower volcanic complex.

     The stratigraphically highest rocks in the mine area are felsic tuffs correlated with the upper volcanic sequence. These tuffs unconformably overlie the trachyte along the southern property boundary, and are distinctly maroon coloured and show varying degrees of welding.

     Thirteen breccia pipes have been mapped on the surface or in underground workings. All of the pipes are located along or to the south of the No Conocida (NCP/NC2) vein complex. The pipes are round to ovoid in shape, up to 100 metres in diameter, and can extend vertically more than 400 metres below the surface. The breccias contain clasts of limestone and trachyte (often mineralized) in an altered trachyte matrix. The ratio of limestone to trachyte clasts varies from pipe to pipe.

     East to northeast striking faults form the dominant structures in the project area and play a strong role in localizing mineralization. Most of these faults dip moderately to steeply to the south and juxtapose younger hanging wall strata against older footwall rocks. Evidence suggests down-dip motion on these faults, however, most of the faults have been reactivated at some point so the movement direction during the initial formation is uncertain. Stratigraphic contacts are displaced from tens to over a hundred metres lower on down dropped blocks.

     The trachyte unit displays an eastward tilting that may reflect displacement on regional, orogenparallel structures outside the project area. This tilting probably reflects the final episode of deformation.

     La Colorada represents a typical epithermal silver gold deposit, with a transition in the lower reaches of the deposit to a more base metal predominant system. There are indications of what might be skarn style mineralization in the deepest drill holes on the property.

     There are four dominant styles of mineralization at La Colorada: (i) breccia pipes; (ii) vein-hosted mineralization; (iii) replacement mantos within limestone; and (iv) deeper seated transitional mineralization (transition zone).

     Mineralization in the breccia pipes generally has lower silver values and elevated base metal values. Mineralization is associated with intense silicification and occurs as disseminated galena and sphalerite with minor chalcopyright and bornite. Sulphides are found in the clasts and the matrix.

     Most mineralized veins on the property strike east to northeast and dip moderately to steeply to the south. Veins occur in the trachyte and limestone units and cut across the bedding and contacts with little change in the width or grades of the vein. Mineralized widths in the veins are generally less than two metres but may be wider if there is a halo of replacement or brecciated material. The No Conocida Poniente (NCP) Corridor strikes east-west and dips moderately to the south, with true widths of approximately up to 15 metres, but most of the economic mineralization is located in quartz veins, which are on average 1 to 2 metres wide.

     Vein fillings consist of quartz, calcite, and locally barite and rhodochorosite. Where the veins are unoxidized, galena, sphalerite, pyrite, native silver and silver sulfosalts are present. The major mineralised veins, are strongly brecciated and locally oxidized, obscuring original textural features. Less deformed veins show mineralogical layering, crystal-lined open vugs, and hydrofracture vein breccias, indicating typical multi-stage growth.

     The depth to the surface and the permeability of the mineralized zone control the level of oxidation in the veins. These factors result in an uneven but generally well-defined redox boundary.

     Manto style mineralization is found near vein contacts where the primary host rock is limestone. At Recompensa, the mantos appear to be controlled by thrust faulting adjacent to the veins, and can form bodies up to six metres wide. Most commonly they occur in the footwall north of the steeply dipping vein, but depending on the

orientation of the fault they can occur in the footwall, the hanging wall, or both. The mineralogy of the mantos is characterized by galena and sphalerite with minor pyrite and chalcopyrite. Gangue minerals are quartz, rhodochorosite, pyrolusite and other manganese oxides.

     The deep seated transition mineralization consists of both vein type mineralization and more diffuse stockwork and breccia zones.

     The current Mineral Resource and Reserve contains only vein hosted mineralization. The Mineral Reserve/Resource ore zones at La Colorada as well as their orientation (strike/dip) and style of mineralization are as follows:

	•		NCP — Average orientation 075/60S. This zone is characterized by a broad mineralized shear within limestone containing one or more quartz veins parallel to the orientation of the shear. The majority of the silver mineralization is found in the quartz veins. Mining is in progress on various sublevels down to the 423 level. The NCP vein is east of the Candelaria Breccia. The vein splits to the west into at least 5 mineralized and recoverable veins termed Footwall, Hangingwall, Hangingwall2, Split and Inversa. Inferred Resources have been estimated to the 520 level. The NCP veins are economically the most important and contain 46% of the remaining resource and reserve ounces of silver.
	•		NC2 — Average orientation 045/70S. NC2 is a narrow (one-to-two metre) mainly sulphide and partly oxide vein. It has a strike length of over 700 metres and is open to the east with potential extension to the west. Mining is currently occurring on levels down to the 380 level and has been drilled to below the 495 level where inferred resources have been estimated. The NC2 vein is the most important source of sulphide mineralization and contains 23% of the remaining resource and reserve ounces of silver.
	•		Amolillo — Average orientation is 045/70S. Amolillo is mainly an oxide vein located 500 metres north of the NC2 and NCP vein complex. The vein has recently been converted to reserve status with 2006 drilling success and the drilling has shown the vein to be open to the east, west and down dip. Pan American decided to rehabilitate and further develop the Amolillo vein in 2006, and has since purchased equipment and commenced mining on the 30 and 70 levels.
	•		Recompensa — Average orientation is 090/80N. Recompensa is a combination of vein and manto mineralization located more than one kilometre northwest of the NC2 and NCP vein complex. The vein mineralization is narrow (less than one metre). Recompensa contains both oxide and sulphide material. Only resources have been estimated in this structure.
	•		4235 — Average orientation 090/75N. 4235 is a narrow (approximately one metre) vein which occurs in the hanging wall of the NCP and NC2 vein systems. It has a strike length of approximately 140 metres, and has been exposed by development on the 295 level and by drilling above and below that level. The western half of 4235 is sulphide and the eastern half is oxide. Only resources have been estimated in this structure.

     Exploration and Drilling

     The bulk of Pan American’s exploration of the La Colorada property has been surface and underground diamond drilling and underground drifting on the veins and mineralized zones.

     Historically, from 1997 to 2006 Pan American has drilled 108 surface holes and 147 underground holes, for 43,548 total metres of drilling. Surface drilling used NQ and HQ sized core and underground drilling used BQ sized core, except for certain NCP Corridor drilling in 2000, which was done with HQ sized core in an attempt to improve recovery. Prior to Pan American’s involvement in the La Colorada project, previous operators had drilled 131 holes

for a total of 8,665 metres. These holes were not used in Pan American’s reserve or resource calculation, with the exception of four holes where the original core was found and assayed by Pan American.

     Drill holes generally range in length from 100 to 300 metres with dips of plus 45º to minus 90º. Standard logging and sampling processes have been used to record information from the holes drilled by Pan American. Interval samples have been cut with a diamond saw and the remaining half core is stored on-site. Hole collars have been surveyed by total station survey equipment.

     Recovery in the drill holes has generally been high (plus 80%), with the exception of holes drilled into the NCP Corridor ore zone and areas of high water flow. In the NCP Corridor zone, the recovery averaged 67%. There was no bias in the poorer recovery drill holes.

     Underground drifting along the mineralized structure was used in previous years and in 2006 as a method of exploration. Approximately 4,332 metres of development in ore was completed during 2006. The drifting allowed detailed sampling, mapping and structural interpretation of the ore zones, as well as key grade information. Development to the west of NCP was important in increasing the reserve and resource base in 2006 and provided information about vein extensions that will be the subject of further exploration in 2007.

     An exploration drilling program of 7,840 metres in 2006, targeted various areas throughout the property. There were many successful holes the best program of which resulted in the conversion of Amolillo to reserve status and provided additional targets along this structure. The Recompensa mine continued to be rehabilitated to provide access for underground sampling and diamond drilling programs to be conducted in 2007.

     Sampling and Analysis

     The La Colorada database consists of two types of samples – underground channel samples and diamond drill core samples.

     Underground development is channel sampled every four metres. Samples were broken out geologically, and vein and wall rock is sampled separately. Sample size is approximately three kilos. To provide an accurate representation of vein grades, samples are taken regardless of whether the vein appears to be above cut-off or not. Any waste lenses within the vein are included in the vein sample. In almost all cases the vein is distinguishable from the wall rock, due to the high quartz and sulphide content of the vein material.

     In addition to the samples taken from development, the database includes stope samples. Stope sampling methodology is the same as the development sampling, however the stope cycles sometimes prevent samples from being taken every 4 metres.

     Drill holes are sampled and logged according to industry-accepted standards. Holes are logged for lithology, alteration, mineralogy and recovery. As with the underground sampling, the samples are broken out by geology, and vein and wall rock are sampled separately.

     Pan American has used three commercial labs for exploration assaying at La Colorada: Bondar Clegg (Vancouver, B.C.), ALS Chemex (Vancouver, B.C.) and Luismin (Durango, Mexico). All assaying by the commercial labs for gold and silver has been done using fire assay with either an AA or gravimetric finish on a one-assay tonne charge. Base metals were assayed using acid solution and atomic absorption (“AA”) determination. Some exploration and all mining samples are completed at the La Colorada lab which uses fire assay for gold and silver on a ten gram charge with a gravimetric finish. Base metals are assayed using acid digestion and AA determination.

     A QA/QC program consisting of check assays and blank samples at an independent laboratory was used throughout the drilling program conducted prior to 2004. Additionally, there is a QA/QC program supervised by the geology department. It includes the submission of tertiary lab check assays (mostly to ALS Chemex) on 2-5% of the samples and 1-2% of check samples. This program was started with the new diamond drilling campaign in 2005.

     All of the drilling, sampling and QA/QC programs were conducted under the direct supervision of Pan American’s geology staff.

     The 2005 Mineral Reserve and Resource used ore lithology densities based on previous years estimates that were calculated primarily from drill core analysis. Densities in 2005 were based on host rock lithology and oxidation state. Densities in the 2006 Mineral Resource and Reserve were based on oxidation state and base metal grades and were increased by an average 10% following a review of waste and ore density measurements taken in 2005 and 2006. Prior resource and reserve estimates replaced missing minor element (gold, lead, zinc) assays with zeros. This was found to under-estimate the minor element content and in 2006, the median value was used instead of zero.

     The 2005 Mineral Resource and Reserve included a 0.95 factor for silver grades. This was removed in the 2006 Mineral Resource and Reserve and replaced with a high grade cut based on normalization of the frequency distribution of grade in order to improve local estimation.

     The 2005 and 2006 Mineral Reserve estimate include a minimum true mining width of 2.0m.

     The 2005 and 2006 Mineral Reserve estimate include 10% mining loss of ore and 7.5% mining dilution. Dilution is added at zero grade.

     Mineral Reserves

     The Company’s management estimates that mineral reserves at La Colorada, as at December 31, 2006, are as follows:

La Colorada Mineral Reserves ^{1, 2}

Reserve						Grams of Silver				Grams of Gold
Category		Tonnes				per tonne				per tonne				% Lead				% Zinc
Proven			608,072				493				0.37				0.89				1.58
Probable			579,699				543				0.43				0.95				1.60
Total			1,187,771				517				0.40				0.92				1.59

     Consumption of the proven and probable oxide and sulphide reserves at current production rates would result in a mine life extending to 2010.

     Mineral Resources

     The Company’s management estimates that mineral resources at La Colorada as at December 31, 2006 are as follows:

La Colorada Mineral Resources ^{1, 2}

Resource						Grams of Silver				Grams of Gold
Category		Tonnes				per tonne				per tonne				% Lead				% Zinc
Measured			184,161				381				0.40				0.98				1.34
Indicated			550,693				274				0.23				1.57				1.43
Inferred			1,718,422				398				0.30				2.24				2.32

     Mining

     The mining method utilized for the oxide ore is mechanized cut and fill from the property’s NCP, NC2 and Amolillo veins. Fill material is sourced from development muck, waste slashed from walls in the stopes and surface stockpiled material. No tailings backfill is planned. Split sets, cemented split sets and shot-crete are used for ground control on various patterns depending on ground support requirements.

     Mechanized equipment includes three yard, two yard and 1.5 yard scoop trams, low profile nine tonne trucks for haulage in ramps, jack-legs and a one boom electric hydraulic jumbo for drilling and battery locomotives/Granby cars for sill haulage. The replacement of the main hoist winch is due to be complete in early 2007.

     The La Colorada mine plan was developed for mining all areas concurrently. The plan is based on providing up to 600 tonnes per day of ore to the oxide mill that was commissioned in 2004 and a further 250 tonnes per day of ore to the sulphide mill.

     In June 2004, La Colorada stopped producing sulphides when the sulphide resource was exhausted above the de-watered level of the mine. Golder Associates Ltd. visited La Colorada and developed a de-watering model to gain access to the sulphide resource below the water level. A study was carried out to determine the mechanical/electrical/development requirements to handle the water. The study was finished during 2004 and the production of sulphides began again in July, 2006.

     The Amolillo section of the mine began production in the second half of 2006. This will augment production from Candelaria.

     Milling

     Milling consists of a 600 tonne per day conventional cyanide recovery plant for oxide ore as well as the 250 tonne per day for sulphide ore processing. The sulphide plant was refurbished to 100 tpd in July 2006 and to 250 tpd in early January 2007 and currently produces a concentrate that is valuable primarily for its lead and silver content. In the first half of 2007 it is planned that an existing zinc flotation circuit will be refurbished and expanded. This circuit will

allow a separate zinc concentrate to be produced and sold. The majority of the silver will continue to report to the lead concentrate. The oxide plant produces a silver doré from a zinc precipitate recovery circuit and on-site refinery.

     Environment

     An environmental impact study (“EIS”) and risk assessment by Clifton Associates Ltd. on the La Colorada property was submitted to Mexican environmental authorities in early March 1999. The EIS described the impact of proposed development and mining activities and provides conceptual plans for closure and remediation. The EIS was approved by the Mexican authorities in November 1999.

     To the best of Pan American’s knowledge, Pan American’s operations at the La Colorada mine currently comply in all material respects with applicable Mexican laws.

     The three most significant environmental issues identified in Pan American’s corporate HSE Audit conducted in 2004, associated with the La Colorada property were the erosional stability of existing tailings facilities on the property, domestic waste water discharge from on-site buildings, and an uncovered solid waste landfill on the western portion of the La Colorada property. The waste water treatment facility was identified for upgrade in 2006 with the installation of a treatment facility expected in 2007.

     The existing tailings facilities will be rehabilitated by a combination of the removal of some tailings for the expansion of the operating tailings facility and regrading and covering of the remnant tailings impoundment. This is an ongoing process as tailings are removed for the expansion of the existing tailings impoundment. A second stage of the dam expansion is expected to be carried out in 2007.

     A solid waste landfill is located on the western portion of the La Colorada property. The historic landfill wastes on the arroyo slope are not covered but new fill is deposited into open trenches atop the landfill and covered on a weekly basis.

     Pan American has estimated the present value of the final site reclamation costs for the La Colorada property to be approximately $4.3 million. During 2005, Pan American began reclamation work concurrent with mining operations by reclaiming old tailings on the property. This work allows efficient use of people and equipment on-site for operations and will continue in 2007.

     Health and Safety

     A formal safety audit was conducted in December of 2006 at the La Colorada Mine by a third party consultant and the Company’s Director of Safety and Training. In 2006 all protocols and procedures were updated at the mine as a result of a safety audit investigation conducted by the Director of Safety and Training.

     Capital Expenditures

     In 2006, capital expenditures at La Colorada totalled $8.0 million and consisted of: (i) mine equipment replacement and improvement totalling $2.4 million; (ii) mine development totalling $3.1 million; (iii) plant equipment replacement and improvement totalling $1.2 million; and (iv) diamond drilling totalling $1.3 million.

     La Colorada’s budget for 2007 totals $8.0 million, and includes: (i) mine development and exploration amount of $1.9 million; (ii) diamond drilling totalling $1.5 million; (iii) tailings dam raise of $1.0 million; and (iv) other infrastructure and mine repairs and improvement for $3.6 million.

     Marketing

     All of La Colorada’s concentrate production is sold under a one-year contract (renewable) expiring in 2007 to an arm’s length smelter located in Torreón, Mexico. All silver doré produced from the oxide mill at La Colorada

is sent for refining at arm’s length refineries located in Torreón, Mexico and subsequently sold to various banks dealing in bullion.

     During 2006 the revenue produced by the La Colorada mine was as follows:

		Revenue1		Quantity
Silver and Gold in Doré		$37.7 million		3,185,000 ounces silver and 3,600 ounces gold
Lead Concentrate		$3.2 million		441 tonnes

     During 2005 the revenue produced by the La Colorada mine was as follows:

		Revenue1		Quantity
Silver and Gold in Doré		$21.6 million		2,508,000 ounces of silver and 2,500 ounces of gold

     During 2004 the revenue produced by the La Colorada mine was as follows:

									Average Sales Price
		Revenue1		Quantity					per Tonne
Silver and Gold in Doré		$11.1 million		1,810,380 ounces of silver and 2,235 ounces of gold					—
Zinc Concentrate		$0.1 million		223 tonnes				$	494
Lead Concentrate		$1.4 million		484 tonnes				$	2,908

     To date, Pan American has not had any difficulty in securing contracts for the sale of the La Colorada concentrates or doré.

(iv) Alamo Dorado

     Ownership and Property Description

     In 2003, the Company completed an acquisition of Corner Bay and its subsidiaries, which originally held the rights to conduct exploration activity on the Alamo Dorado mineral deposit. Today, the Alamo Dorado project is managed and operated through Pan American’s wholly owned Mexican subsidiary, Minera Corner Bay S.A. de C.V. (“MCB”).

     The Alamo Dorado project is located 40 kilometres south-southeast of the town of Alamos in the southeast corner of the State of Sonora, near the border with the State of Sinaloa in northwest Mexico at 26º, 44’, 44.2’’ North Latitude and 108º, 40’, 00.7’’ West Longitude.

     The Alamo Dorado Project consists of two contiguous exploitation concessions, the 509 hectare Alamo Ocho Concession and the 4,865 hectare Alamo Dorado Concession, five non-contiguous exploration concessions

covering 6,014 hectares, and surface rights covering 763.64 hectares. All of the mineral reserves and resources for the Alamo Dorado project lie within the boundaries of the Alamo Ocho and Alamo Dorado concessions and these surface rights. The Alamo Ocho Concession expires in 2050, the Alamo Dorado Concession expires in 2054 and the five exploration concessions expire 50 years from the date in which they were registered in the mining register. The Alamo Ocho Concession was purchased by Corner Bay from Alfredo Duran Viramontes and Roberto Duran Viramontes for $425,000 in semi-annual payments from 1997 to 2002 and a balance payment of $300,000, all of which have been paid.

     MCB has in its possession all of the principal permits necessary for the operation of Alamo Dorado. MCB obtained an explosives permit from SEDENA following the construction of the explosives storage facilities in 2004. A conversion of MCB’s existing temporary land use permit from SEMARNAT, the Mexican national environmental agency for the proposed mine, to “construction status” was issued in December 2004. MCB also submitted, and SEMARNAT approved, a land use permit modification for the milling scenario with dry stack disposal of non-hazardous tailings in an unlined facility in January 2005. MCB has also secured a permit from INAH, the Mexican national archaeological and historical institute, for the Alamo Dorado mine site area and a blasting permit from SEDENA, the Mexican national secretary of defence. The SEMARNAT land use permit for the construction of the 115 KV power line and water line for the project have now been acquired. The municipal construction permit for the Municipality of Alamos has also been acquired.

     MCB has an existing agreement with SEMARNAT for compensation activities in mitigation for the environmental impact of the Alamo Dorado project. MCB is conducting its compensation activities on schedule and within the framework of its agreement with SEMARNAT.

     MCB has also received a water use permit from the Mexican National Water Commission that allows extraction of 1.5 million cubic metres of water annually for project use from a series of three ground water wells developed 27 kilometres from the site by MCB. MCB has also obtained rights to the water and surface rights for the wells and pipelines from three of the local land owner groups called Ejidos.

     Location, Access, Climate and Infrastructure

     The Alamo Dorado project can be accessed from the United States via interstate 19 south of Tucson crossing into Mexico at the border town of Nogales, Arizona continuing on the Mexican toll highway 15 which is a well-maintained, four-lane, paved road that starts at the border town of Nogales, Sonora and heads south through Hermosillo, Ciudad Obregon and into Navojoa. From Navojoa, the road to Alamos, Sonora, is an overwidth two-lane paved road (recently upgraded in 2006). The project is 40 kilometres southeast of the town of Alamos and is accessed primarily via a moderately maintained dirt road which was recently upgraded by MCB. A secondary access route exists that is used for heavy deliveries and shipments. There are water crossings that are impassable for short periods during heavy local downpours in the rainy season. During these periods, personnel will access the site solely via a route which includes a bridge suitable for passenger vehicles, but which would not be used for bulk consumable shipments. Major airports in the state of Sonora are located in Hermosillo in the central sector of the state, and Ciudad Obregon to the south. The airport at Ciudad Obregon is approximately 75 kilometres north of Navojoa or 125 kilometres northwest of the Alamo Dorado site. The town of Alamos also has a sealed airstrip that is in the process of certification for international air traffic.

     The climate of the Alamo Dorado project area is transitional between the tropical climates further south and the subtropical desert lands typical of the Pacific Coast of Baja, California. The area is generally dry with the warmest period typically occurring between March to July. Precipitation occurs during a short but intense rainy season that typically extends from July through September. The mine operates year round.

     The terrain in the vicinity of the Alamo Dorado project site consists of moderate to steep foothills that characterizes the area located between the coastal plain of the Sea of Cortez to the west and the Sierra Madre Occidental mountain range to the east. Local relief ranges from 300 metres above sea level to approximately 550 metres above sea level at the top of Cerro Colorado Ridge in which the Alamo Dorado deposit occurs. The tops of the hills consist primarily of unmineralized bedrock exposures with flanks that are covered by coarse colluvium. Drainages in the nearby valleys are typically incised about two-to-four metres in depth, indicative of shallow bedrock and relatively high rainfall runoff.

     Construction of the Alamo Dorado mine was completed by the end of 2006 and the site now has the following facilities in full operation: Mobile mine equipment shop warehouse facility, and laboratory facilities completed in 2005; explosives magazine constructed in 2004; fully developed open pit mine following pre-stripping activities completed during 2004 and 2005; precious metals processing plant completed by the end of 2006, including but not limited to, the crusher, grinding mills, leach tanks, filter plant, refinery and an acidification, volatilization and reneutralization (“AVR”) plant; installation of a 115 kva power transmission line from the Miguel Hidalgo hydroelectric station 35 kilometres away was completed in 2006; development of three water supply wells 27 km to the southwest complete with pumps and a pipeline was completed in 2006; administration and communication facilities were completed in 2006; and a tailings embankment was constructed in 2006 and the initial plant tailings were placed in the facility by the end of 2006.

     Royalties and Encumbrances

     To the best of Pan American’s knowledge, the Alamo Dorado project is not subject to any royalties or encumbrances.

     Taxation

     The principal taxes of Mexico affecting Alamo Dorado include income tax, asset tax, annual fees for holding mineral properties, various payroll and social security taxes and a refundable value added tax.

     History

     Prior to 1997, there is no record of any modern exploration conducted on the Alamo Dorado project nor are there any records of production, although there is evidence of a few old adits in the general area. All recorded drilling at the property has been undertaken since 1997.

     Geologists from MCB visited the property in 1997 and collected some grab samples from various locations along the north trending ridge. Encouraged by the positive assay results from those samples, MCB began a systematic surface sampling program and eventually obtained an agreement to purchase the Alamo Ocho concession from the owners. The surface sampling program outlined a 300-metre-long north-south trending silver-gold anomaly situated along the east side of the Cerro Colorado Ridge.

     Exploration on the Alamo Dorado project has been comprised primarily of reverse circulation drill campaigns conducted annually from 1998 to 2001. A structural geology examination of the property was undertaken in 2000 through mapping of surface exposures along drill access roads. A more comprehensive 1:2500 scale geologic mapping program was conducted in 2001 over an area of about four square kilometres in the project area. Results established surface extents of the volcanic lithologic units, cross cutting dykes and alteration patterns and provided a linkage for the interpretation of the drilling geological data. Exploration that was completed through 2002 formed the basis for Mintec to create a resource model for the property. MCB also contracted with an independent third party to conduct and complete a feasibility study for a heap leach operation with 35,504 million

tonnes of 68 g/t silver ore reserve. Mintec’s resource model supported the study. The study was completed in June 2002.

     On February 20, 2003, the Company acquired Corner Bay pursuant to a plan of arrangement under the Canada Business Corporations Act, and in connection therewith the Company issued 7,636,659 common shares and 3,818,329 common share purchase warrants exercisable for a period of up to five years at a price of Canadian $12.00 per common share. The Company also granted options to purchase up to 553,847 common shares of the Company to former employees of Corner Bay and its subsidiaries.

     In 2003 Pan American contracted with SRK Consulting to perform a structural evaluation of Alamo deposit. The SRK study concluded that reserves were structurally controlled rather than disseminated as previously interpreted. Mineralization was found to be generally higher grade along structurally controlled zones and not a lower grade disseminated deposit as previously interpreted. This raised the prospect that the mineralization might be better suited to a milling type operation rather than a heap leach operation, as previously interpreted.

     Resource Modelling Inc. (“RMI”) was contracted by Pan American in 2003 to construct a new resource model using the revised structural interpretation of the mineralization. RMI’s new resource model reduced the overall silver resource on Alamo Dorado by approximately 40%, primarily due to the loss of approximately half of the previously interpreted gold mineralization.

     An infill drilling program was conducted on the Alamo Dorado concession in the first half of 2004 in order to confirm the revised interpretation of the reserves, and to provide core samples for the metallurgical testing needed for design of a mill and recovery plant.

     In 2004, Pan American contracted a third party to conduct a study to confirm whether a milling operation was the optimum type of recovery operation for the Alamo Dorado mining project. This study indicated that project economics could be improved by using grind-leach circuits in a mill instead of the previously evaluated heap leach concept. In 2004 AMEC prepared, a throughput tradeoff study for the milling option which indicated that a 4,000 tonne per day throughput was the optimum production rate for a milling circuit.

     In September 2004, Pan American commenced an update of the Alamo Dorado Feasibility Study for a new project based upon the revised resource model, and a conventional milling and leaching circuit. A number of consulting firms were engaged to collaborate on the study. The Feasibility Study NI 43-101 Technical Report for Alamo Dorado project was completed March 31, 2005 by M3 Engineering & Technology Corp.

     In 2005, the Company’s board of directors approved a $76.6 million project to construct and operate the Alamo Dorado silver mine.

     As a part of the new feasibility work, Pan American conducted a pilot scale demonstration of the leaching, filtering and AVR process technology which was selected for the project. In addition, the solutions produced in the pilot plant were used for laboratory scale testing of the electrowinning technologies under consideration, and tailings samples were taken for physical, chemical and environmental characterization. Results of the pilot plant tests were satisfactory and substantiated the estimates and forecasts in the feasibility study.

     In March 2005, M3 Engineering & Technology Corporation was selected as the EPCM contractor to conduct the engineering and design, as well as oversee the construction of the project. Design commenced immediately and on site construction began in April, 2005.

     The majority of the mine equipment was selected, procured, and shipped to the site in mid-2005. Mine pre-stripping operations commenced at the Alamo Dorado project in August, 2005 and continued ramp-up until June

2006 where highest production was proven at the highest requirement of the life-of-mine plan (13Ktpd). By the end of December 2006 the mine had stockpiled 620Kt of ore at 62gpt Ag and 0.31gpt Au, mined 4143Kt of in-pit waste, mined over 700Kt of ex-pit waste including developing 12.6km of access roads, completing the tailings facility phase 1 footwall and under-drains, completing the sediment retention dam, completing 1.5km of sediment control channels and aiding mill earthworks construction.

     Construction of the open pit mine and processing facility was completed in the fourth quarter of 2006 as efforts turned to commissioning of the filtration, refining, and acidification volatilization reneutralization (“AVR”) for cyanide recovery circuits. Total construction costs for the project have amounted to approximately $81.5 million. In addition, costs to build the initial ore stockpile and in-circuit silver inventories, which totalled $2.3 million, have been recorded as current working capital. Slow start-up of the filtration circuit pushed initial silver production to Q1 2007. The mine completed its first silver pour in the first quarter of 2007, and is now in the process of ramping up to expected production levels of 4,000 tonnes per day. During 2006 the mill processed 35Kt of ore at 60gpt Ag and 0.3gpt Au with essentially all production reporting to in-process inventory at the end of the year.

     The completed process facilities include a 42” gyratory crusher, 6.7 m diameter SAG mill, 4.3X 7.5 m ball mill, 8 leach tanks for 100 hours of leach retention, 2 each 162 square metre vacuum belt filters, 30-cell electrowinning circuit, and an AVR for cyanide recovery and reuse. Although no unit operation of the process plant is unique or untested technology, the flow scheme is innovative and allows the direct deposition of non toxic moist (22% moisture) solid tailings to cake directly to the tailings facility. Support facilities include a 35 kilometre 115 kVA line fed from a local hydroelectric station, a 27 kilometre water line supplying from three wells, a microwave connection to modern telecommunication systems, and a two MW generator for backup power supply.

     Geology and Mineralization

     The Alamo Dorado project is located in the Sierra Madre Occidental Range, a late Cretaceous to Tertiary age volcanic province that extends for hundreds of kilometres through north-western Mexico. In the mine area the volcanics lie upon a basement of Jurassic metamorphosed sedimentary rocks that were locally intruded by various Tertiary age intrusives. The overlying volcanic sequence is grouped into lower and upper units based on the different styles of volcanism that are present. The Lower Volcanic Sequence is of late Cretaceous to early Tertiary age and consists of up to 1,000 metres of tuffs, flows, and volcanic breccias that are andesitic to dacitic in composition. The Upper Volcanic Sequence is of middle Tertiary (Oligocene-Miocene) age and consists of more than 1,000 metres of ash flow and ash fall tuffs of rhyolite to dacite composition that lie unconformably upon the Lower Volcanic Sequence.

     A period of particularly active tectonism including intrusion and uplift occurred between the deposition of the Lower Volcanic Sequence and the Upper Volcanic Sequence. Uplift and faulting of the Sierra Madre Occidental province was accompanied by the intrusion of felsic to mafic composition dykes, along with the local emplacement of intrusive stocks and batholiths. Mining districts in the Sierra Madre Occidental province are typically located along sheared and faulted structural zones formed in the Lower Volcanic Sequence, and to a lesser extent, within the underlying granitic intrusives. These deposits are characterized by low sulfidation epithermal precious metal systems that locally may contain base metals.

     Uplift of the Sierra Madre Occidental province continued following Tertiary volcanism. Erosion of the uplifted area has resulted in deep canyons and rugged topography.

     In the Alamo Dorado mining concession the Upper Volcanic Sequence is present in the higher parts of the surrounding hills, but has largely been removed by extensive erosion. Near the eastern concession boundary there are relatively underformed, gently dipping stratified rocks, which are probably Oligo-Miocene in age and are part of the Upper Volcanic Sequence.

     The host rocks at the Alamo Dorado mine consist of a sequence of ductile deformed, steeply dipping, Mesozoic epiclastic marine rocks that contain minor intercalated siliceous exhalite and pillow basalt.

     During the early Tertiary the marine sediments were accreted onto the fore arc terrain of a north-west trending magmatic arc. The Laramide orogenic event probably caused at least the first phase of ductile deformation which resulted in the development of a strong penetrative planar fabric and the metamorphism of the sediments to greenschist facies.

     Deformation of the rocks at Alamo Dorado was episodic and progressed before, during and after deposit formation. Alteration of the metasedimentary rocks to an assemblage of quartz-muscovite occurred in and marginal to major fault zones.

     The metamorphosed marine sedimentary rocks were intruded by dacite dykes, a diorite feldspar porphyry dyke, a hornblende phyric intermediate dyke, at least 2 phases of granodiorite stocks and minor aplite dykes.

     Mineralization and alteration at Alamo Dorado is controlled by an early cryptic structural zone that has since been transposed and kink folded by the regional ductile deformation events. The current shape of the orebody is controlled by a combination of the post-mineral ductile deformation events, and the relatively late, north-west trending block faults, which compartmentalize different portions of the deposit. Silver and gold mineralization may have been associated with the emplacement of the diorite feldspar porphyry dyke and/or 1^st phase granodiorite stock, both of which display hydrothermal alternation and contain silver mineralization.

     Hypogene silver mineralisation occurs predominantly as argentite with fine (50 µm — 0.1 µm) disseminated pyrite in clear glassy quartz veins, within quartz crystals of siliceous gangue and within fractures in siliceous gangue. It also occurs as tetrahedrite inter-grown with pyrite, galena and sphalerite.

     In a high grade pervasively silicified-pyritised rock silver mineralization is reported acanthite intergrown with and rimming galena in a late quartz-sphalerite-pyrite-galena-chalcopyrite vein, in addition to an unidentified silver sulphosalt inter-grown with chalcopyrite.

     Within a sample of diorite feldspar porphyry dyke trace silver mineralization occurring as a silver sulphosalt is recognized with disseminated pyrite-chalcopyrite-galena in altered mafic minerals and a quartz-chlorite groundmass gangue.

     The occurrence and mineralogy of gold mineralization is unclear, due to the low gold grades within the deposit, it is difficult to find gold grains within samples. One 4 µm grain of gold was observed with argentite in fractures within clusters of pyrite.

     In the oxide environment silver is very mobile, this was evidenced by strong leaching of Ag mineralization especially from the top 15m of the Alamo Dorado deposit. Within the oxide horizon silver mineralization occurs in the form of silver chloride mineral chloroargyrite, in this environment acanthite and silver sulpho-salts are also stable. Due to the deep weathering of the deposit in the area of the pit, chloroargyrite is a dominant silver mineral.

     Exploration

     No additional exploration was conducted at the Alamo Dorado property during the construction and commissioning of the new mine.

     Drilling, Sampling and Analysis

     The Alamo Dorado project has been evaluated in five separate drilling campaigns using reverse circulation (RC) drilling techniques and diamond drill coring methods. A total of 79 drill holes were drilled on the property in 1997: 75 RC holes and four core holes. The 19 discovery drill holes were drilled in 1998 and 11 of the 19 holes were deepened in

1999. An additional 23 new RC drill holes were drilled in 1999, along with four large diameter core holes. The core drilling was specifically for metallurgical testing. In 2000, 14 previously drilled holes were deepened and 25 new RC holes were drilled. Eight more RC holes were drilled in 2001. In 2004 infill core holes were drilled for confirmation of the new resource model, and for physical samples needed for milling, leaching and pilot plant testing.

     Drilling totals 31,604 metres in 130 drill holes. The holes generally range in length from 90 to 390 metres, averaging 243 metres. Drill holes were drilled at a declination of between 38° and 70°, with a single vertical hole. The major bearing was easterly with a subordinate number of holes drilled from the west. Drill hole collars were located respective to a property grid.

     Standard logging and sampling conventions were used to capture information from the cuttings and drill core. Inspection of the model and drill hole data in plans and sections, together with the spatial statistical work showed reasonable geologic and grade continuity in the main area of mineralization.

     A program was conducted to assure the quality of its sample preparation and assaying. The routine assaying was done at Bondar Clegg, a recognized assay laboratory. This laboratory performed duplicate assays on course reject material, and the precision of these duplicate assays (approximate 15% relative standard deviation of pair differences) is typical of that achieved for similar deposits within the mining industry. Check assays were done on pulps at a number of laboratories. The vast majority of these checks confirm the original assays which will be used to perform resource estimation. A small percentage of potentially contaminated assay intervals were identified in RC holes, all within zones drilled under wet conditions. These data were set to zero for the purpose of reserve and resource estimation. Management of Pan America is of the opinion that the Alamo Dorado project’s quality assurance program meets industry standards.

     Data verification and QA/QC checks were performed on various occasions by retained consultants on different vintages of the Alamo Dorado database. The bulk of the assays in the database were examined in 2002 as a part of a feasibility study that was undertaken by MCB. In addition, RMI selected 21 drill holes so that independent third parties could perform an assay verification check. These holes were selected from all of the major drill campaigns and were spatially located throughout the deposit. These QA/QC checks met industrial standards.

     Based on these various data verifications that have been conducted, the Alamo Dorado assay database has been shown to be accurate and suitable for use in estimating resources. Very few errors have been found with respect to the assay values that are stored in the electronic database versus certified assays.

     For mining, samples are taken from the Ingersoll Rand blast-hole cones using 2 trays inserted under the drill shroud. The samples do not contain sub-drill material. The blast-holes are drilled on a 4x5m staggered pattern. The sample tray material is combined and single pass split at the rig to a minimum weight of 5kg (normal average 8kg). The samples are analysed on site at the Alamo Dorado laboratory. The samples are split, dried, pulverized, split and fire assayed with AA finish for Ag and Au. Duplicate samples are analysed for every 20^th sample and all duplicates are also assayed by external laboratory (principally ALS Chemex). A certified standard is inserted to every batch or a minimum of 1:20 samples. Every 100^th sample is tested for Net Acid Producing Potential as an assurance process. Every 20^th sample is also sampled for minor elements Cu, Fe, Mn, Pb and Zn.

     Mineral Reserves

     Principally based on the 2005 Feasibility Study, but amended for stockpiled ore estimates, milling depletion and current operating cost projections the estimated proven and probable mineral reserves at the Alamo Dorado project are as follows:

Alamo Dorado Mineral Reserves ^{1, 2}

						Grams of Silver				Grams of Gold
Class Reserve Category		Tonnes				per tonne				per tonne
Proven			1,642,000				108				0.38
Probable			10,794,000				113				0.30
TOTAL			12,436,000				112				0.31

     The Alamo Dorado mine uses a cut off grade that varies by each block, primarily as a function of the copper grade and expected cyanide consumption during the treatment process. The lowest value for cut off grade used at Alamo Dorado is 54 g/t silver equivalent grade. The metallurgical recoveries for gold and silver are calculated for each block using the following formulae: Silver recovery = 0.95 — 5 / silver grade (g/t) – 0.0005 * Copper grade (ppm) Gold recovery = 0.95 — 0.001 / gold grade (g/t) – 0.0005 * Copper grade (ppm).

     Mineral Resources

     Based on the Feasibility Study prepared in 2005, utilizing the same pit shell design as used in the Feasibility Study, but assuming a higher metal price of $9.00 silver and $525 per ounce gold, estimated mineral resources at the Alamo Dorado project are as follows:

Alamo Dorado Mineral Resources ^{1, 2}

						Grams of Silver				Grams of Gold
Class Reserve Category		Tonnes				per tonne				per tonne
Measured			263,000				84				0.31
Indicated			3,610,000				71				0.23
Inferred			518,000				79				0.30

     Mining

     Alamo Dorado is a conventional surface mine that utilizes a 7.5 cubic metre hydraulic shovel, a 6.5 cubic metre front end loader and six 53 tonne mechanical rock trucks for the principal earthmoving. The mine is designed to deliver 4,000 tonnes of ore per day to the plant and remove the necessary waste rock to the waste dumps. At the end of 2006, there were 12,436,000 tonnes of proven and probable ore reserves, with 11,816,000 tonnes remaining to be mined from the pit and the rest in ore stockpiles. There are approximately a total of 25,036,000 tonnes of ore and waste remaining to be mined in the pit, meaning that the estimated required overall strip ratio is 1.12:1, or 8,500 tonnes per day. The equipment fleet selected for Alamo Dorado has demonstrated capacity of up to 13,000 tonnes per day on a single shift per day basis. Additional mining capacity would be available if required by adding another operating shift. The overall strip ratio of 1.65 to 1 waste to ore reported in the NI 43-101 technical report of March 31, 2005 has been improved by: mining a higher strip ratio to start the pit; reducing the effective cut off grade from

60 g/t to 54 g/t silver equivalent grade primarily the result of higher metal prices, and improving the pit design. The mine is being developed in two phases, with an initial phase designed to develop downward into the deeper, higher grade reserves which will complete by early 2009, and a second phase of development balancing the material movements with the first phase which will expand the pit to its final high-wall and depth. This second phase is expected to commence in early 2008 and is expected to complete in 2013. As of the end of 2006, the mine was on schedule with its mine plan.

     The mine stockpiles high grade, low grade and mineralized waste category material. The high grade cut-over was selected to maximize return on investment whilst not compromising ore block integrity. The low grade material is above the incremental break even cut-off. The mineralized waste is stockpiled at mineral prices 10% above the current Reserve.

     After mining completes, processing of the low grade stockpiles will commence.

     The estimated life of Alamo Dorado’s reserves at the current design levels will allow the project to operate within the life cycle of the initial mine equipment and should not require significant replacement capital.

     Milling

     Ore from the Alamo Dorado deposit is treated by conventional crushing and SAG/Ball mill grinding to –74 um, followed by thickening, agitated cyanide leaching, leach residue filtration, direct electrowinning to produce a cathode sludge, AVR cyanide recovery and recirculation, leach residue washing with AVR product solutions, dry stack tailings and conventional silver and gold doré bar production from melting of the cathode sludge. The nominal treatment rate will be 4,000 tonnes per day of ore on a 24-hour per day schedule. To date, this nominal treatment rate has been achieved, and in some instances exceeded, however it has not operated on a consistent basis. The mine’s tailings treatment process is expected to recover at least 97.5% of the sodium cyanide used and also neutralize mill tailings, thus reducing the mine’s environmental impact and reclamation costs.

     The plant completed capital constructing in the fourth quarter of 2006 with commissioning progressing through year end 2006 and into early 2007.

     The design of a dry stackable tailings facility consists of downstream constructed embankment that will buttress the moist tailings cake placement. The impoundment area for tailings placement will not be lined given the design expectation that the moist cake will meet non-toxic classification. As at the end of 2006 the first phase embankment was completed as were the related under-drains and channel seepage beneath the facility into a lined collection pond below the embankment. This collection pond will be equipped with a pump to transfer solutions back to the mill and reduce overall mill make-up water requirements in 2007.

     Environment

     The original environmental permitting work considered options developed for the 2002 Feasibility Study, and was provided by Corner Bay in conjunction with Agauyo Consultoria Ambiental, Corner Bay’s environmental consultant and coordinator. AMEC reviewed the environmental impact statement and risk assessment study, as well as ancillary documents submitted by Corner Bay to the Mexican Secretary for Environmental and Natural Resources (“SEMARNAT”) to identify potential major deficiencies and for appropriateness for permitting Alamo Dorado. Environmental impacts arising from the development of the mine are greatly outweighed by the overall benefits. SEMARNAT recommended a finding of no significant impact in the original impact statement/permitting document. Following completion of the updated feasibility study, the original environmental impact statement and risk assessment study documents were revised, resubmitted and approved by SEMARNAT. Project construction commenced in 2005 based on the approved environmental impact statement and an improved modification of the

SEMARNAT Temporary Land Use Permit for the operation of a milling operation and disposal of non-toxic tailings in a dry stack tailings area.

     Pan American has estimated final site reclamation costs for the Alamo Dorado property to be approximately $5.1 million.

     Health and Safely

     In 2005, an Emergency Response Plan (ERP) was developed for the Alamo Dorado project. The detailed plan outlines responses to safety and environmental emergencies. The plan may also be incorporated at other Pan American operations. In 2006, Alamo Dorado completed MSHA (Mine Safety and Health Administration) training for all Pan American employees, and also completed one million hours without a lost time incident in June of 2006. In February, 2007 a formal safety audit of the Alamo Dorado Mine was completed by a third party consultant and the Company’s Director of Safety and Training.

     Capital Expenditures

     Construction of the Alamo Dorado mine was completed by year end 2006. Total project expenditures through the end of 2006 were approximately $81.5 million. The mine then entered into a period of commissioning and is expected to reach commercial production in the second quarter of 2007.

     The 2005 Feasibility Study included an economic analysis using a price of silver of $7.00 per ounce, in which the Alamo Dorado project was projected to generate a 16% return on investment and undiscounted net cash of $68.5 million over the project life. There has been no updated economics completed on the project since the completion of the Feasibility Study in early 2005, however, the reserves stated in this Annual Information Form have been evaluated using Pan American’s long term reserve pricing of $9.00 per silver ounce and $525 per gold ounce.

     Marketing Sales

     Production from the Alamo Dorado mine is in the form of dorè bars, which will be refined at arm’s length refineries prior to the sale of refined silver and gold to bullion bankers. At the date of this Annual Information Form, Pan American has entered into a multi-year refining contract with a Mexican refiner, Penoles for part of the production from Alamo Dorado and does not anticipate any difficulty in securing refining arrangements for the balance of the production in due course.

(v) Morococha Mine

     Ownership and Property Description

     The Morococha mine is owned and operated by Argentum, a Peruvian company in which Pan American, through its subsidiary Pan American Peru, has a 92.01% voting interest as at December 31, 2006 (the remaining interest is held by Alejandro Gubbins and Compania Minera Casapalca S.A.. The Company holds approximately 63.4% of certain non-voting investment shares of Argentum, with the remaining securities being held by other titleholders. The Company’s consolidated interest of voting shares and investment shares is 88.5% as at December 31, 2006.

     The Morococha mine is located in the Morococha District, Yauli Province, Junin Department, Peru, on the east side of the continental divide just below Ticlo summit, approximately 38 kilometres west of the city of La Oroya and 137 kilometres east of Lima. The Morococha mine’s general coordinates are latitude 11° 36’ S and longitude 76° 10’ W.

     The Morococha property is comprised of three economic administrative units (“UEA”) and various concessions held outside of these UEAs. The three UEAs contain 435 mining concessions owned outright by Argentum, 15 mining concessions held jointly with Peru’s national mining company, Centromin Peru (“Centromin”), nine concessions held jointly with other third parties, one leased concession (El Proletario), 11 concessions leased from Silver Lead Mining Company and 35 concessions leased from Corporacion Minera Sacracancha S.A., which together total 9,166.73 hectares. In addition, there are 19 mining concessions outside of the three UEAs that comprise part of the Morococha property, eight of which have been assigned to Volcan, four of which are owned jointly with Volcan and five of which are leased from third parties, which together total 2,129.57 hectares. The majority of the mining concessions comprising the Morococha property are contiguous. All known mineralized zones in which mining operations are currently conducted, and in which known mineral reserves exist, are set out within these concessions.

     Argentum does not hold registered legal title of most of the surface lands that overlie the mining concessions which comprise the Morococha property. These rights are owned by Centromin, the Peruvian national mining company. The Morococha property’s process plants, shafts and access roads are all located on lands of which legal title is registered in the name of Centromin. Argentum’s and its predecessors’ use of these surface lands have been exercised for decades with Centromin’s knowledge and its claim to continued use is based on long term use Peruvian law. Please see “Risks Related to Pan American’s Business — Title to Assets”.

     Recently, Centromin has raised contentious issues with respect to certain surface lands over which Argentum has exercised use for years. In two instances, Centromin has alleged that Argentum has wrongfully erected fences, built camps and constructed terraces which invade and infringe upon private property belonging to Centromin. As such, Centromin has demanded they be removed. In addition to claiming invasions of private property, Centromin asserts that Argentum is using the fences and constructions for the purposes of dumping minerals and waste, thereby raising environmental issues. Management of the Company maintains that many of such fences and constructions have been in place for over a decade, and that Centromin has effectively granted Argentum easements over its property for purposes in relation thereto, and is of the opinion that Centromin has no foundation for claiming infringement of private property or environmental damage. Pan American will vigorously uphold its property rights.

     Centromin has granted Argentum a right to use certain of Centromin’s surface lands throughout the useful life of its mining operations, provided such use does not interfere with the development of a mine in respect of the Toromocha disseminated copper system, which overlies certain of Argentum’s mining concessions and underground mining operations. Argentum is obligated to pay Centromin $60,000 (which amount will be adjusted annually to account for inflation) quarterly commencing May 28, 2003 as consideration for this right. Peru Copper Inc., a copper mining company carrying on business in Peru, has recently been granted by Centromin the option to acquire mining concessions and surface rights in respect of the Toromocha property. Peru Copper and Pan American had discussions with respect to negotiating resolution of surface rights issues that may arise between them in connection with their respective operations but are not in discussions at this time.

     The Morococha mine is in the process of obtaining the following authorizations (i) a domestic sewage discharge authorization which is pending to be granted by the General Health Division of the Health Ministry; (ii) an authorization from the Ministry of Energy and Mines to enlarge the Amistad mill; and (iii) A user certificate of chemical raw materials and supervised products to be issued by the Peruvian Police Drug Department.

     A report entitled “Morococha Operations, Yauli Province, Peru — Technical Report”, dated February 2004 (the “REI Report”), was prepared for the Company in accordance with NI 43-101 by an independent Qualified Person, as the term is defined in NI 43-101, Donald F. Earnest, P. Geol., President of Resource Evaluation Inc. (“REI”). Certain statements in the following summary of the Morococha property are based on and, in some cases, extracted directly from the REI Report.

     Location, Access, Climate and Infrastructure

     The Morococha mine is accessible via Peru’s paved central highway, by travelling approximately 137 kilometres east of Peru’s capital city of Lima, then five kilometres south via a public, all-weather gravel road. Rail service from Lima is also available via a national rail line that passes adjacent to the Morococha operations.

     The topography of the Morococha property is characterized by steep, rugged ridges and peaks ranging in elevation from 4,400 metres to 4,900 metres above sea level. Vegetation is sparse and wildlife is limited to mostly birds and small mammals, amphibians and reptiles. The climate of the Morococha district is typical of the Andean Cordillera in Peru, with two distinct seasons — wetter summer months (November through March) and dryer, colder winter months (April through October). Because all mining currently takes place underground, climate has minimal effect on ore production at the Morococha property.

     Mining has taken place on the Morococha property and nearby areas (Casapalca, Cerro de Pasco) for more than 100 years, resulting in a well developed regional transportation and power infrastructure and a large local labour pool. Water for processing is plentiful, and tailings disposal areas are adequate. Several mine development waste disposal sites exist on the Morococha property and are sufficient to meet the needs of mining operations. Two existing processing plant sites are sufficient for all proposed operations.

     Royalties and Encumbrances

     To the best of Pan American’s knowledge, the Morococha property is not subject to any royalties or encumbrances, other than the mining royalty tax described under “Morococha Mine- Taxation” below.

     Pan American has estimated the present value final site reclamation costs for the Morococha property as of December 31, 2006 to be approximately $10.6 million. See “Quiruvilca Mine — Royalties and Encumbrances” for a description of changes in Peruvian mine closure legislation.

     Taxation

     The principal taxes of Peru affecting Argentum include income tax, employee profit sharing taxes, annual fees for holding mineral properties, various payroll and social security taxes, a refundable value added tax and a Peruvian mining royalty tax.

     The Morococha operation generated income tax provisions of approximately $14.1 million, $2.9 million and $1.7 million in 2006, 2005 and 2004 respectively. In addition, employee profit sharing taxes of $3.5 million, $0.8 million and, $0.5 million were generated in 2006, 2005 and 2004, respectively.

     Morococha sales in 2006 were approximately $84.3 million. Pursuant to Peruvian royalty regulations, the first $60 million of sales attracted a 1% royalty while the balance attracted a 2% royalty. The total royalty on Morococha’s production amounted to approximately $1.1 million in 2006, $0.4 million in 2005 and $0.2 million in 2004. See “Quiruvilca Mine — Taxation” for a description of the Peruvian mining royalty tax.

     History

     Mining began in the region around the Morococha property before 1500, and production has been continuous in the district since the late 1800s.

     Between 1915 and 1918, much of the district was reorganized and incorporated into the Cerro de Pasco Mining Company (“Cerro de Pasco”). By 1924, Cerro de Pasco was producing at a rate of 1,500 tonnes per day from primarily copper ores containing 6% copper. Between 1929 and 1934, Cerro de Pasco excavated the 11.5

kilometre Kingsmill Tunnel, successfully dewatering all of the Morococha district mine workings above the 4,020 metre tunnel elevation. The Kingsmill tunnel is still in use and is a vital feature of the Morococha mining district, providing production access for deeper underground mining operations that otherwise would have been too challenging and expensive to develop.

     In the 1940s, the Gubbins family began operating mines in the Morococha district through Minera Santa Rita S.A. and Minera Yauli S.A., which were subsequently consolidated in the late 1990s into SMC. Cerro de Pasco continued to operate in the Morococha district until 1974, when its mines were nationalized by the Peruvian government. Production from the Cerro de Pasco mines in the district continued under the Peruvian national mining company, Centromin, until 2003, when SMC acquired these operations from Centromin through privatization.

     On January 20, 2004, the Company entered into an agreement with 14 arm’s-length individuals, estates and companies, all of whom are members of the Gubbins family or entities in which members of the Gubbins family hold beneficial interests (the “Morococha Vendors”), to purchase 92.014% of the voting shares of Argentum, a sociedad anónima organized under Peruvian company law, for $35,425,390 in cash. Argentum acquired, through a corporate restructuring undertaken under Peruvian company law, the Anticona and Manuelita mining units and related infrastructure and processing assets from SMC. At the time of acquisition, Argentum held in its treasury as cash, all profits earned by SMC’s Anticona and Manuelita mining operations since November 1, 2003. The transaction was subject to regulatory approval and a number of conditions, including: (i) the completion of the corporate restructuring; (ii) the listing on the Lima Stock Exchange of 100% of the shares of Argentum, including those issued in connection with the corporate restructuring; and (iii) Pan American successfully undertaking a public bid for not less than 92.014% of the voting shares of Argentum through the Lima Stock Exchange.

     On February 24, 2004, the Company entered into a further agreement with the Morococha Vendors to purchase all of the issued and outstanding shares of Natividad, a corporation organized under Peruvian company law, which holds mining concessions and operations that are complementary to the Anticona and Manuelita mining units for $1.5 million in cash. Closing of the acquisitions of Argentum and Natividad occurred contemporaneously in August 2004, with effect as of July 1, 2004 and in 2005, Argentum amalgamated with Natividad. Argentum made all necessary applications for delisting its shares from the Lima Stock Exchange and the delisting process was completed in 2006. In addition, Pan American Peru is currently making a bid to acquire the labour shares in Argentum, and as at December 31, 2006 the company holds 63.5% of such labour shares. The labour shares were created as a means through which workers would be able to take part in the company’s success (but do not afford the holders of such shares influence over the decision-making of the company, as they are non-voting), and are held either by current workers, former workers or by third parties who have bought labour shares in the free market.

     Geology and Mineralization

     A 2,000 metre thick Paleozoic-Mesozoic sequence of schists, volcanic rocks and predominantly carbonate sediments cut by a series of Upper Tertiary intrusions provide the host rocks for the mineralization in the Morococha district. The structures that account for the majority of the vein mineralization in the Morococha district trend predominantly northeast to east-northeast. Mineralization includes epi-mesothermal silver-lead-copper-zinc veins and bedded silver-base metal replacements or mantos (which together account for the majority of the past and present economic mineralization at the Morococha property), intrusive-sediment contact skarns, and the quartz porphyry-hosted Toromocha disseminated copper system. The size and geometry of individual ore shoots in the veins can range up to 400 metres in length and more than 800 metres down plunge. Undiluted district vein width averages are on the order of 1.2 metres. Replacement manto mineralization is generally restricted to receptive stratigraphic horizons where favourable lithologies are intersected by mineralized veins or are proximal to pre-mineral intrusives. Mantos can have a significant strike extent where the veins are closely spaced, and can range from less than one metre in width up to 12 metres. Intrusive contact related skarn bodies, while common locally, are generally small and irregular, with disseminated rather than massive sulfide mineralization.

     Ore and gangue mineralogy is similar in veins and mantos but it varies considerably across the property. Sphalerite, galena, and chalcopyrite are the most important primary minerals for zinc, lead and copper and silver is generally present as freibergite (Ag-tetrahedrite) or argentiferous galena. Gangue generally consists of quartz, calcite, barite and rhodochrosite, the latter having a strong correlation with higher silver grades.

     As with most of the large Peruvian polymetallic deposits, Morococha exhibits a distinct lateral and vertical metal zonation. A central copper zone centered on the Toromocho copper deposit grades outward through a lead-zinc-minor silver zone and then into an outermost zone that is richer in silver but still containing significant lead-zinc contents. There is also a distinct trend for higher silver grades at higher elevations on the west side of the Morococha property. Individual silver assays of greater than 2,200 grams per tonne (“g/mt”) are not uncommon above 4,800 metres in certain areas, and greater than 300 g/mt silver ore grades also are common in the outer silver-lead-zinc zone above the 4,400 metre elevation in certain areas. In veins that have been mined over significant vertical extents (such as those in Manuelita), silver grades tend to decrease as zinc grades increase with depth. However, several of the major veins currently being mined on the 4,020 metre Kingsmill Tunnel level still contain silver grades in the 200 g/mt to 250 g/mt range. The hydrothermal alteration present at Morococha is typical for central Peruvian zoned polymetallic deposits.

     Exploration

     Historically, SMC conducted only minimal exploration in the Morococha district since the late 1990s. However, exploration potential is considered to be excellent throughout the district due to the significant vertical extent (over 800 metres) of economic veins and the prevalence of multiple carbonate units favourable for replacement mineralization. Additionally, of the very few drill holes (less than ten) that tested depth extensions of known veins or mantos below developed ore, all intersected potentially economic material.

     Based on positive exploration results in 2006, the Morococha mine was able to mine 621,620 DMT during the year, and process 652,571 DMT at the Amistad mill (consuming some of the stockpile accumulated in 2005). Production volume has increased from Pan American’s expected production volume of 50,500, DMT per month for 2006 to 54,381 DMT per month average in 2006. Additional production in 2007 is expected to come from the Codiciada area, where replacement mantos are amenable to mechanized mining as opposed to more labour intensive vein mining.

     Pan American has developed a new long range mine plan and development program for the Morococha property, based on actual results.

     Drilling

     SMC utilized surface and underground diamond drilling to test for potential ore-grade mineralization in the various veins, replacement mantos, and skarn bodies. Once the results of drilling determined the presence of ore grade mineralization, the vein or manto was accessed by underground crosscutting and drifting for further exploration and delineation of ore reserves. Thus, assay data generated by SMC’s drilling was seldom used in block grade estimations for mineral reserves. Since September 2004, exploration at the Morococha property has been conducted using a combination of diamond drilling and underground drifting. Eight to ten diamond drills are in continuous operation at the property, drilling AQ, BQ, NQ and HQ sized holes between 50 and 350 metres in length. This is generally followed by underground development. During 2006, 57,184 metres of drilling was conducted (5,504 metres from surface and 51,680 metres from underground), along with 9,361 metres of drifting for reserve delineation and access. In addition, 4,630 metres of short holes have been drilled to assist immediate production as delineation of ore bodies, and 40,000 metres of diamond drilling, which includes 7,200 metres of definition drilling, are programmed for 2007.

     Diamond drill core is split in half, with one half sent for assaying and one half retained in a secure on-site facility. The veins in the cross-cuts are channel sampled, and a two to three kilogram sample is sent for analysis.

     The mine laboratory conducts a routine internal QA/QC program that includes external check samples and the routine submission of standards.

     Additionally, there is a QA/QC program supervised by the geology department. It includes the submission of at least 1 certified and blank per day as well as tertiary lab check assays on 2-5% of the samples and 1-2% of the check samples.

     All sampling, whether diamond drilling or cross-cutting, is done under the direct supervision of the Morococha mine geology department.

     Sampling and Analysis

     The data used for the estimation of mineral reserves and resources at the Morococha property consist almost entirely of underground chip channel samples from the backs of drifts, the ribs of crosscuts, the backs of stopes and the ribs of raises. The samples are taken every 1.0 metre across the veins or mantos. Stopes are sampled at least once a month on 2.0-metre centers along strike.

     All samples from both the Morococha mine and mill are first run for silver, lead, copper, and zinc using an atomic absorption (“AA”) unit. Samples with initial AA analyses for silver greater than 25 ounces per ton are rerun by fire assay, using assay charges that vary in size from 10 to 15 grams depending on the grade of the initial AA assay (the larger the AA assay value, the larger the fire assay charge). Wet chemical analysis for lead and zinc is reserved for concentrate samples.

     In 2005, Argentum hired a third party laboratory (MINLAB) in order to ensure the appropriate sampling and analysis standards were applied to the mineral samples obtained from the Morococha mine. In addition, a LIMS system has been installed in the lab to assure an automated quality control of standards, blanks and check samples.

     Mineral Reserves

     Pan American’s management estimates that the proven and probable mineral reserves for the Morococha property as of December 31, 2006 are as follows:

		Morococha Mineral Reserves1,2
						Grams of Silver
Reserve Category		Tonnes				per Tonne				% Copper				% Lead				% Zinc
Proven			4,073,423				155				0.36				1.49				3.84
Probable			2,304,141				157				0.41				1.83				4.16
TOTAL			6,377564				156				0.38				1.61				3.96

     Mineral Resources

     Pan American’s management estimates that the mineral resources at the Morococha property as at December 31, 2006 are as follows:

		Morococha
		Mineral Resource Estimate 1, 2
						Grams of Silver
Resource Category		Tonnes				per Tonne				% Lead				% Copper				% Zinc
Measured			2,052,231				192				1.47				0.30				3.52
Indicated			810,905				178				1.26				0.41				2.90
Inferred			9,783,592				227				1.90				0.47				4.37

     Mining

     Underground mining operations at the Morococha property consist primarily of typical overhand cut and fill, shrinkage, and mechanized room and pillar methods using waste rock and tailings for backfill where needed. Holes are drilled in the mining face using jacklegs which are loaded with explosives and blasted twice per day between shifts. Mechanized drilling jumbos are used for drilling the mining face in some of the room and pillar and larger scale development areas. Slushers are used in the cut and fill and shrink stopes and scoop trams are used in the room and pillar stopes to transport the broken rock to chutes that report to levels with track haulage. Locomotives transport the ore from the chutes to one of three shafts for hoisting. Highway dump trucks then haul the ore from shaft coarse ore bins to mill stockpiles. The mine operates two eight hour shifts per day, seven days a week.

     The Yauli, Maria and Central production shafts provide access down to the Kingsmill drainage tunnel level at an elevation of 4,020 metres. The Central shaft is located approximately 1,500 metres west of the Maria Shaft and 2,500 metres west of the Yauli shaft. The Maria and Central shafts are equipped with above ground head frames, hoists and ore bins. The Maria Shaft has a single split drum hoist with two 2.0-tonne skips. The Central Shaft is larger with two split drum hoists. One hoist is fitted with two 3.5-tonne skips and the other is used for men and materials. The Yauli shaft is equipped with two 2.6-tonne skips and its collar is located beneath the surface. Ore from the Yauli shaft feeds into chutes from where it is then transported by a small locomotive to an adjacent subsurface truck loading facility. The three shafts have a combined capacity to support production schedules in excess of 600,000 tonnes per year.

     The Morococha property includes the Sacracancha and Amistad process plant facilities that are separated by approximately five kilometres. Both process plants are conventional selective flotation facilities capable of producing individual copper, lead, and zinc concentrates. These flotation concentrates are shipped to third party smelters for final refining. In December 2003, the Amistad plant became the primary milling facility for all Morococha mine ores and, since 2004, the Amistad mill has been processing all production at Morococha. Throughout 2005, some of the Sacracancha equipment was transferred to the Amistad mill. Pan American has been able to repair and upgrade the Amistad plant, much of which is at least 80 years old, in order to increase the production and obtain satisfactory metallurgical performance.

     Following the completion of the 2006 mine plan, Pan American was able to identify some additional production opportunities. Extensive exploration and development programs will need to be conducted during 2007 in order to achieve the Company’s long term goals for the mine.

     Milling

     During 2006, the Amistad concentrator plant processed 652,571 tonnes (100% basis) of ore in comparison to the budgeted amount of 605,798 tonnes. The full amount of ore processed in 2006 was treated through the Amistad mill, while the Sacracancha facility was shut down.

     Further improvements made to the reliability of the Amistad mill in 2006 have allowed the Company to budget for production of 656,772 tonnes in 2007.

     Environment

     The single largest environmental liability identified at the Morococha mine is the mine’s share of the cost of a proposed Kingsmill tunnel water treatment plant which is estimated to cost $12 — $15 million to build. The Kingsmill drainage tunnel discharges between 1.5 to 1.8 cubic metres per second of water into the Rio Yauli and has been determined to be a significant polluter according to studies performed in the late 1990s. Morococha’s share was defined by a study completed in 1997 by Water Management Consultants (“WMC”), which apportioned responsibility for the costs of the treatment plant as follows: (i) Centromin (72.2%); (ii) Morococha operations (12.3%); (iii) Soc. Minera Puquiococha (8.5%); (iv) Soc. Minera Austria Duvaz (4.9%); and (v) Minera Centrominas (2.1%).

     The capital and operating costs for the water treatment facility are directly proportional to both constituent load and flow determined in the 1997 WMC study. Centromin has updated the 1997 WMC study, and the results are under discussion. As part of its due diligence efforts, Pan American conducted its own sampling of the Kingsmill tunnel discharge. Based on the results of this sampling, which indicated an improvement to water quality since 1997, it appears unlikely that the update will materially change the responsibility calculations determined in the 1997 WMC study.

     In 2006, Peru Copper, a mining company focussed on developing the Toromocho project adjacent to Morococha, placed funds into a trust account to fund the design and construction of the proposed water treatment plant for the Kingsmill Tunnel drainage. The design work has been awarded by Peru Copper to an internationally recognized engineering firm and it is understood that work on the plant design has been initiated. Peru Copper has not requested any other parties to contribute to the funding of the construction of the treatment plant. It is understood that they are interested in obtaining the rights to use the water for the operation of the proposed mine.

     The Huascacocha Lake, which is adjacent to the Morococha mining operations, has been used for tailings disposal since 1960. WMC completed a study in 2001 to determine what may be required to mitigate the historical tailings. The WMC plan includes raising the dike to submerge a larger portion of tailings and covering the remaining beach tailings with topsoil. Construction of the raise started in late 2005 and was completed in late 2006. With the new raise the facility has the capacity to store 15 years of tailings production.

     In October 2003, the Peruvian government passed legislation requiring active mining operations to file closure plans within twelve months of the date of passage of the legislation. Administrative rules associated with this legislation which laid out detailed closure requirements, including bonding and tax deductibility of reclamation and rehabilitation expenses, were promulgated in October 2005. These rules required detailed closure plans and cost estimates to be compiled by a certified third party consultant by October 2006.

     In August of 2006 Pan American submitted a comprehensive closure plan for the Morococha Mine to the MEM in accordance with that ministry’s regulations. The closure plan was prepared by third party consultants registered with the Peruvian authorities as qualified to present closure plans to the MEM. The closure plan includes a summary of the proposed closure scheme for each of the major areas of impact such as mine water, tailings areas, wasterock dumps, plant site infrastructure, and underground mine. A detailed cost estimate was prepared based on Pan American’s and the consultant’s experience with closure works over the past 12 years and experience with other

projects in Peru. As required by the ministry, the costs were summarized in three phases: concurrent closure, final closure and post closure.

     The total estimated cost for the MEM closure plan for Morococha was $6.4 million. This cost estimate serves as the basis for the calculation of the financial guarantee required by the ministry’s closure plan regulations. In the case where the final closure solution for a specific facility or area of the mining operation was not precisely definable, due to questions of the technical feasibility of different alternatives or the potential for yet evaluated alternatives, a base case cost was estimated for the closure item. This cost estimate was used to avoid any potential over commitment for the payment of the financial guarantee. For the purpose of the corporate estimate of closure and reclamation costs, uncertainty of closure solution was managed with the application of probabilities to potential closure scenarios. The current present value of closure expenditures at Morococha were estimated including a provision for potential alternative solutions to the Kingsmill Tunnel water treatment and water management. The current present value of expenditures is estimated at $10.6 million.

     Health & Safety

     In May of 2006, a formal safety audit was conducted at the Morococha mine by a third party consultant and the Director of Safety and Training. In October 2006, supervisory safety training was conducted at the Morococha mine by a third party consultant.

     Capital Expenditures

     The 2006 mine plan and development program entailed several capital improvements designed to increase productivity. In 2006, capital expenditures at the Morococha mine were approximately $10.5 million and consisted of: (i) equipment purchases and replacement totalling $5.7 million; and (ii) mine development and drilling of $4.8 million.

     Morocochas’s budget for 2007 totals $13.5 million, and includes: (i) mine capital amount of $5.8 million for mine equipment and development; (ii) diamond drilling totalling $2.5 million; (iii) process capital amount of $1.5 million for equipment repairs and improvements; and (iv) other infrastructure and mine camp repairs and improvement for $3.8 million.

     Marketing

     In the case of zinc concentrates, Morococha has entered into contracts lasting until 2007 with such traders and refineries as BHL and Trafigura (Cormin). In the case of lead concentrates, Morococha has a contract with Doe Run Peru for part of the production that lasts through 2007. In addition Morococha has signed another lead contract with BHL through 2007 for the remainder of the lead concentrates.

     In the case of copper concentrates, Morococha renewed a contract with Doe Run Peru that lasts until 2008. Morococha also signed a contract with Cormin for 2007 deliveries of copper concentrates and has made spot sales with Cormin and BHL during 2006.

     During 2005, Pan American put out for tender the remaining zinc production from Morococha from 2007 to 2009, which was sold to Votorantim, BHL and Glencore. Also, in 2005, a tender was put out for the remaining lead production from 2006 to 2007, which was sold to BHL.

     In 2006, the revenue per type of concentrate produced by the Morococha mine was as follows:

										Average Sales Price
		Revenue1				Tonnes				per Tonne
Zinc Concentrate		$38.1 million					41,968			$	908
Lead Concentrate		$14.9 million					12,955			$	1,150
Copper Concentrate		$32.3 million					7,209			$	4,481

     In 2005, the revenue per type of concentrate produced by the Morococha mine was as follows:

										Average Sales Price per
		Revenue1				Tonnes				Tonne
Zinc Concentrate		$13.2 million					39,354			$	337
Lead Concentrate		$  9.9 million					13,043			$	758
Copper Concentrate		$16.6 million					4,581			$	3,614

     To date, Pan American has not had any difficulty securing contracts for the sale of Morococha concentrates.

(vi) San Vicente

     Ownership and Property Description

     The Company does not consider the San Vicente mine to be a material property for the purposes of National Instrument 51-102. Pan American has a 55% interest in Pan American Bolivia (“PASB”), a Bolivian company that owns a 50% joint venture interest in, and is the operator of, the San Vicente project. The remaining interest in the joint project is held by Corporación Minera de Bolivia (“COMIBOL”), the Bolivian state mining company.

     The project consists of 15 mining concessions, totaling 8,159 hectares. PASB has continually complied with the joint venture agreement (and various addendums thereto), and as a result the project and the concessions are in good standing. All mining property concessions of the San Vicente project are in the name of COMIBOL, and contractually PASB is responsible for paying the yearly mining tenure tax. These payments are currently up to date and are due annually in June.

     Location, Access, Climate and Infrastructure

     The San Vicente silver-zinc mine is located at latitude 21°-16´south and longitude 66°-19´west in the southern end of Bolivia in the Province of Sud-Chichas, Department of Potosí. The property is in the Andean High Plateau (Altiplano) at approximately 4,400 metres above sea level with semi-arid climatic conditions. The land is sterile and rugged and is in a confined valley.

     San Vicente is located 460 kilometres south of the city of Oruro and 300 kilometres west of Tarija. The property is accessible by dirt road 100 km west of the town of Tupiza and 150 km south of Uyuni. Tupiza is connected to the rail system which serves Bolivia and connects with the ports of Arica and Antofagasta in Chile. Zinc concentrates are loaded to rail cars in Tupiza and transported by rail to Antofagasta and silver concentrates are trucked to Arika, Chile.

     The terrain is rough with sparse vegetation. Daytime temperatures range from 4°c in June and July to 14°c in December and January. The winter months are May to September and nightly temperature are frequently below zero with extremes of minus 15°c. The rainy season is from December through February. Average annual rainfall is 190mm. Rain is very uncommon from May to September as rainfall occurs mainly in the summer months, with up to 20mm per day. As the mining operations take place underground the climate has minimal effect on ore production. With the exception of the miners employed at the San Vicente Mine there are very few other inhabitants in the area.

     Royalties and Encumbrances

     Pursuant to an option agreement entered into with COMIBOL (which is described in more detail under “San Vicente — History”), with respect to the development of the San Vicente property, PASB is obligated to pay COMIBOL a participation fee of 37.5% of the operations cash flow. Once the commercial production phase of San Vicente begins the COMIBOL participation fee, will be reduced by 75% until PASB recovers its investment in the property. Thereafter the COMIBOL participation fee will revert back to 100% of the participation fee described above.

     To the best of Pan American’s knowledge, neither PASB nor the San Vicente property is subject to any other royalties or encumbrances.

     Taxation

     The principal tax of Bolivia affecting PASB is a 25% income tax payable based on the annual profits of the company. Accumulated losses may be deducted against income tax without any time restrictions. There are no other significant taxes affecting PASB.

     History

     There has been sporadic mining activity in the area since colonial times. Initial exploitation was the mining of oxidized silver from exposed veins. The first written records of mining activity were in 1820, when the area was named the Guernica Mine. Several different owners operated the mine from 1911 through 1950. From 1950 until 1952 the mine was operated by the Aramayo Mining Company. In 1952 the Bolivian government nationalized the mine and placed it under control of COMIBOL.

     Following the discovery of new silver and zinc veins in the late sixties, COMIBOL constructed the Vetillas concentrating plant in 1972 with a capacity of 400 tonnes per day. Only one product, a zinc concentrate rich in Silver was produced. Mine infrastructure at the site includes an underground mine, Vetillas flotation mill, power and water supplies, and worker housing.

     The mine was operated by COMIBOL until 1993, at which time mining was suspended pending the privatization of mining in Bolivia. In 1995 the San Vicente Project was offered for a joint-venture contract by COMIBOL. On June 21, 1999, Pan American signed a joint-venture agreement (Contrato de Riesgo Compartido) with COMIBOL. At that time, PASB was a 100% subsidiary of the Company. The mine was maintained by COMIBOL until the joint venture contract was signed.

     In late 2001, PASB and COMIBOL, the Bolivian state mining company that optioned the San Vicente property to Pan American, entered into a two-year toll mining agreement with Empresa Minera Unificada S. A. (“EMUSA”), a well-established Bolivian mining company, to process up to 250 tonnes of San Vicente’s ore per day at EMUSA’s nearby Chilcobija mill. In late 2005, PASB and COMIBOL entered into an additional 7 month toll mining agreement with EMUSA to process up to 250 tonnes of San Vicente’s ore per day at EMUSA’s nearby

Chilcobija mill. This toll mining agreement was renewed in 2006, for an additional 18 month program that is projected to last until late 2008.

     In 2003 PASB entered into a share purchase agreement with EMUSA, whereby EMUSA could acquire up to 49% of the outstanding shares of PASB. This agreement required EMUSA to fund feasibility and development related expenses to an aggregate of $2.5 million by May 1, 2005. By year end 2004, EMUSA had invested $2.34 million of the $2.5 million required to vest as a 49% owner of PASB, and EMUSA indicated it intended to proceed with the remaining investment to acquire a 49% interest.

     In the fourth quarter of 2005, the Company negotiated a shareholders’ agreement with EMUSA and Trafigura (a minority stakeholder of EMUSA), which agreement contemplated an increase in Pan American’s share holding in PASB from 50% to 55%. Pursuant to this shareholders’ agreement, which was signed in January 2006, EMUSA would hold 40% of the shares of PASB and Trafigura would hold the remaining 5%.

     In July 2006, PASB and COMIBOL renegotiated the terms of the main contract, changing COMIBOL’s participation fee to a fixed percentage participation fee of 37.5% of the operating cash flow. The contract has a 30 year term. The original contract stated that for PASB to maintain its participation in the contract it should invest a minimum of $20 million dollars in the San Vicente project. Pursuant to an amendment to the contract signed in June 2006, PASB committed to build a new mill, tailings dam and other civil works at San Vicente during an 18 month time period with a minimum additional investment of $23 million. In addition, PASB committed to present an advance engineering study, and on January 2007, the study was presented on time and is currently being reviewed by COMIBOL. Once COMIBOL officially approves the advance engineering study, the 18 month construction period may start.

     Geology and Mineralization

     The regional sedimentary sequence consists of a basement of a thin sequence of Paleozoic marine siliciclastic sediments overlying non continuous cretacous continental sediments, and a package of thick continental clastics of Tertiary age of the Potoco and San Vicente Formations. Various thin intrusive volcanic flows with an intermediate composition are also included in the Tertiary sequence. The Paleozoic sediments were folded before the deposition of the Cretaceous sediments. Sedimentation in the tertiary basin was controlled during the Upper Oligocene and Lower Miocene periods by thrust faults to the east and west.

     The lithology of the Project area is relatively simple. Included are the fanglomerate facies of the San Vicente formation which are in contact with Ordovician shales along the San Vicente fault. The fanglomerate consists of poorly sorted conglomerate with clastic sub angular fragments of Paleozoic sediments cross cut by quartz veins. The matrix is red in colour and consists of iron bearing sandstone.

     The structural environment of the mine area consists of a series of pre-mineral faults dipping 50-80 degrees and striking west-northwest. They are part of the first and second tension shearing pattern of structures with an environment of tension running east-west caused by a thrust on the footwall side of the San Vicente fault.

     Mineralization in the district is known to cover an area of 3 by 4 kilometres to a depth of 300 metres. It consists of replacement veins filling pre-existing faults, brecciated conglomerates in the San Vicente fault and mineralization in dacitic dykes.

     Exploration, Drilling, Sampling and Analysis

     Feasibility study activities continued in 2004 with 13,919 metres of surface and underground diamond drilling, 2983 metres of underground development and resampling of historical reserve blocks for purposes of

resource definition and exploration. Metallurgical studies were conducted at the TECSUP laboratories in Peru and results of flotation tests indicated that the +82% zinc and silver recoveries seen at the EMUSA plant during the year are reasonable feasibility level assumptions.

     A scoping study completed in 2000 anticipated that five million tonnes of ore could be processed through a newly constructed 1,300 tonne per day plant. The results of the exploration and development activities concluded an indicated resource of approximately half of the amount anticipated in the scoping study. This result led to a proposal to COMIBOL in November of 2004 for a renegotiation of Pan American’s investment commitment to the joint venture that would be more appropriate to the size and character of the ore body. At year-end 2005, COMIBOL was still considering the proposal. In mid January 2006, Pan American completed and submitted a feasibility study on the San Vicente Project to COMIBOL.

     Mineral Reserves

     Pan American’s management estimates that proven and probable mineral reserves at the San Vicente mine as at December 31, 2006 are as follows:

		San Vicente Mineral Reserves1,2
Reserve						Grams of Silver
Category		Tonnes				per tonne				Zn (%)
Proven			1,988,538				304				3.85
Probable			1,069,647				430				2.66
TOTAL			3,058,185				348				3.43

     Mineral Resources

     Pan American’s management estimates that the measured and indicated mineral resources at San Vicente as at December 31, 2006 are as follows:

		San Vicente Mineral Resources1,2,3
Class Reserve						Grams of Silver
Category		Tonnes				per tonne				Zn (%)
Measured			224,953				74				1.15
Indicated			445,244				294				3.67
Inferred			531,223				243				2.34

     Feasibility Study

     Pan American completed and submitted a feasibility study on the San Vicente Project to COMIBOL in mid January 2006. The objective of the feasibility study was to identify the optimal configuration to mine and process ore from the San Vicente mine. The feasibility study includes ore reserve calculations, proposed mining methods and rates, milling options, infrastructure requirements, capital and economic estimates, as well as socioeconomic and environmental analyses.

     One of the more difficult evaluations was the selection of the location of the processing plant. The initial focus was on the refurbishment of the existing Vetillas mill, which is located approximately 7 kilometres from the mine. Further evaluation revealed that the best operational and economic benefits will be derived from constructing a new mill closer to the mine. While the initial mill capital would be less if the Vetillas mill were to be refurbished, the study concludes that building a new processing facility closer to the mine more than offsets the increased capital with savings derived from lower operating costs, tailings disposal and infrastructure costs. The feasibility compares a refurbished Vetillas plant operating conventionally at 600tpd compared to a new plant utilizing a SAG mill operating at 750tpd.

     Mining

     The existing mine was designed and built to extract steeply dipping narrow veins using conventional shrinkage stoping. Levels were established at 30 to 40 metre intervals and include the +70, +35, 0, -30, -70, and -110 levels. For reference, the 0 level is at an elevation of 4,440 metres above sea level. The main accesses to the mine are via the San Jose adit at the 0 level and the San Juan adit on the -30 level. Existing track drift dimensions are 2.4 by 2.3 metres and therefore mine cars and locomotives are restricted to 40 cubic feet and 6 tonnes respectively.

     The discovery by diamond drilling of the extension of the Litoral Zone has provided a wide and high grade addition to the mine resource base. PASB determined that a significant portion of the reserve was amenable to lower cost longhole mining, warranting the introduction of longhole mining methods. Longhole mining will allow a reduction in mine operating costs and will allow a higher mining recovery of the wider ore zones than could be achieved through shrinkage mining Going forward, the San Vicente mine intends to utilize underground mining methods consisting of a combination of shrinkage stoping (continuing with track equipment with ore hoisting through the Pelayo Shaft) and longhole mining (mechanized equipment with ore extracted utilizing a ramp to surface).

     PASB has conducted several small scale mining programs with ore being treated under toll milling arrangements at the Chilcobija mill. These programs, conducted under addendums to the original joint-venture contract signed in 1999, have more than offset the project’s holding costs. COMIBOL receives benefit from the programs by way of royalties paid on net cash flow generated.

     During 2003, a total of 108,809 tonnes of ore were processed under the agreement at an average mill feed grade of 400 g/t silver and 3.45% zinc.

     From March through December of 2004 a total of 54,033 tonnes of ore grading 417 g/t silver and 5.79% zinc were mined and tolled. Pan American’s share of the cash flow from the project was an estimated $766,000.

     From July 2005 through February 2006 a total of 48,422 tonnes of ore were mined and 25,427 of ore grading 307 g/t silver and 3.97% zinc were tolled. 212,270 ounces of silver and 2,151 tonnes of zinc concentrate were produced (calculated on a 100% basis). 22,995 tonnes of ore were stockpiled at San Vicente.

     A 150,000 tonne toll program commenced August 2006. The program is anticipated to continue through February 2007. The 150,000 tonne program addresses the social issue of the miners at San Vicente and also provides both PASB and COMIBOL with cash flow.

     Production for the calendar year 2006 totalled 53,851 tonnes processed of silver and zinc grades of 326 g/t and 3.44 % respectively. Production on a 100% basis was 481,042 ounces of silver and 1,463 tonnes of zinc.

     Milling

     The Vetillas processing plant was constructed by COMIBOL in the early 1970’s. The plant and mine were designed for the extraction and treatment of 400 tonnes of ore per day. COMIBOL operated the San Vicente mine and Vetillas plant until 1993; at which time mining was suspended pending the privatization of the mine. The Vetillas Mill has received no maintenance and has not been operated since.

     In mid 2006, PASB entered into a 150,000 tonne toll milling agreement with EMUSA in order to process ore at EMUSA’s Chilcobija facility, for an additional 18 month program that is projected to last until late 2008.

     The feasibility of refurbishing Vetillas as a conventional facility was satisfactory — but the calculated operating costs were high. Vetillas requires significant foundation and structural repairs and presents significant challenges in the handling of tailings. Evaluation revealed that the best operational and economic benefits would be derived from constructing a new mill closer to the mine and proposed tailings impoundment.

     The design and construction of a new plant allows for the introduction of automation, advanced technology and modernization to the process line; resulting in reduced operating costs per tonne processed, and increased safety for workers. A new plant, utilizing a SAG mill was designed to process ore at the rate of 750tpd.

     Environment

     In 2002, in order to conduct small-scale mining and pilot toll milling operations PASB was required to obtain an Environmental License by means of the acquisition of a Ficha Ambiental (“FA”) and an Environmental Impact Assessment (“EIA”) from the Bolivian Ministry of Environment. This license was valid for a period of up to four years and pertained to the extraction and treatment of up to 334 tonnes of ore per day. In February 2005, PSAB filed applications with the Environmental Authority in order to update the environmental license to allow for an increase in the permitted volume of ore that could be mined and toll milled at the Chilcobija mill. In June of 2005, the environmental license was upgraded to allow the mining and processing of 600 tonnes per day.

     Compliance with the environmental license requires the following: bi-monthly monitoring of water, soil and air quality in the San Vicente sector and quarterly monitoring of water, soil and air quality in the Vetillas sector.

     In compliance with the Environmental Regulation for Mining Activities, PASB commissioned MINCO SRL, a Bolivian consulting firm, to conduct a base line environmental audit (“ALBA”) of the San Vicente property, as well as other environmental studies in satisfaction of Bolivian laws and regulations. The ALBA sets out the present situation of the environment at the project and identifies environmental liabilities regarding pre-existing waste rock dumps and the environmental impact on soil, water, vegetation and solid residues caused by previous mining activities conducted on the property.

     The most significant environmental issues currently associated with the San Vicente property are related to the waste dumps, the need to pump low pH water from the mine, the permanent drainage from the Pelayo waste rock dump that runs into the San Vicente river, and water discharge from the San Juan and San Francisco adits.

     In order to remediate environmental hazards or concerns caused by previous owners of the San Vicente property, PASB will be focussing on and following the recommendations of MINCO outlined in the Environmental Impact Evaluation Assessment, together with the complementary studies of Health and Industrial Safety, the Handling of Solid Residues procedures, the Closure and Rehabilitation Plan and the Contingency Plan. Specifically, PASB is currently taking or expects to implement the following measures: (i) construction of a passive water treatment plant downstream from the Pelayo shaft for water being pumped from the mine; (ii) mitigation of waste rock acid drainage generated by the previous mining activities; (iii) construction of pits for storage of solid residue; (iv) proper storage of garbage; (v) construction of scrap storage deposit facility; (vi) construction of a deposit for the storage of waste oil; (vii) installation of a meteorological station in San Vicente in 2007; and (viii) implementation of a tree planting scheme. The Company has not accrued any amounts for any prior existing closure costs.

     Health & Safety

     In November of 2006, a formal safety audit was conducted by a third party consultant, and the Company’s safety staff from its Quiruvilca, Morococha and Huaron mines. In November 2006, new mine rescue equipment was purchased by San Vicente’s mine management, and training on use of the mine rescue equipment was conducted by the vendor representative.

     Marketing

     The principal products from the San Vicente mine are silver rich zinc and copper concentrates. All of these concentrates are sold under contracts to an arm’s length metals trading company. In 2005 and 2006, these concentrates were sold to Consorcio Minero S.A. (“CORMIN”) under a contract which runs until 2010. Under the terms of all of its sales contracts, the San Vicente mine receives payment for an agreed percentage of the silver, zinc, or copper contained in the concentrate, after deductions for smelting and refining costs.

     During 2006, the gross revenue per type of concentrate produced at San Vicente was as follows:

										Average Sales Price
		Revenue1				Tonnes				per Tonne
Zinc Concentrate		$4.7 million					2,764			$	1,700
Copper Concentrate		$4.2 million					625			$	6,720

     During 2005, the gross revenue per type of concentrate produced at San Vicente was as follows:

										Average Sales Price
		Revenue1				Tonnes				per Tonne
Zinc Concentrate		$0.8 million					732			$	1,067
Copper Concentrate		$0.4 million					80			$	5,029

     The zinc and copper concentrates produced at San Vicente are highly marketable as they contain low levels of impurities and high silver content. To date, Pan American has been able to secure contracts for the sale of the San Vicente mine’s zinc and copper concentrates.

(vii) Stockpiles

     Pan American transports and sells silver-rich pyrite from existing stockpiles (the “Stockpiles”) at a small-scale operation in central Peru. These operations are not material to the Company.

     The Stockpiles were accumulated over several years by Volcan, a Peruvian mining company which is one of the largest silver producers in the Cerro de Pasco mining district in central Peru. Until recently, silver could not be extracted from the Stockpiles by standard metallurgical processes.

     On November 8, 2002, Pan American entered into two agreements to acquire the Stockpiles. The first agreement grants Pan American the right to mine and sell 600,000 tonnes of the highest grade silver from the Stockpiles to a smelter, where ore is used as process flux and Pan American is paid for the silver contained. Pursuant to this agreement, as of December 2004, Pan American is required to pay Volcan 33.3% of the net cash from Stockpile sales, after taxes and costs, once Pan American generates $4.5 million net cash, after taxes and costs, from Stockpile sales.

     A ten-year contract to process the Stockpile material was negotiated with Doe Run’s La Oroya smelter. Production from the Stockpiles in 2004 was 79,451 tonnes of ore resulting in silver production of 961,869 ounces of silver. During 2005, 61,499 tonnes of ore were sold resulting in 692,381 ounces of silver. During 2006, 58,016 tonnes of ore were sold resulting in 566,383 ounces of silver.

     The second agreement gives Pan American the option to acquire a 60% ownership in a number of other Stockpiles by spending $2 million on exploration over three years, with a further option to increase its interest to 100% by paying $3 million plus a production royalty within the subsequent 12 months. Pursuant to this agreement, Pan American may exercise the option until the end of 2006. Volcan questioned the validity of the option agreement on, among other things, the basis that the agreement was not properly executed by an authorized representative of Volcan. Pan American exercised the option in December 2006, and in January 2007, Volcan denied Pan American’s exercise of its option, on the basis that the original agreement between the parties was extinguished before an addenda extending the option was in place, that Pan American did not comply with its investment/expenditures obligations and that the addenda to the option was signed by an unauthorized representative. Pan American believes that the agreement, together with the addenda and other general agreement, are valid and enforceable, and that it has exercised its option as per the agreement between the parties. Pan American intends to seek arbitration to resolve the dispute between Pan American and Volcan regarding the option on the pyrites stockpiles. If Pan American is unsuccessful in the arbitration or is otherwise unable to resolve the dispute with Volcan, Pan American may lose its interest in the inferred resources disclosed in the Stockpile Mineral Reserve and Resources table below.

     The Company’s management has estimated mineral reserves and resources at the Stockpiles, as at December 31, 2006, to be as follows:

Stockpile Mineral Reserves and Resources1
Reserve or Resource Category		Tonnes				Grams of Silver per Tonne
Probable Reserve			294,359				292
Inferred Resource1,2			21,337,000				162

B. DEVELOPMENT PROJECTS

(i) Manantial Espejo

     Ownership and Property Description

     On April 12, 2006, Pan American completed the acquisition from Silver Standard Resources Inc. (“SSR”) of that company’s 50% joint venture interest in the Manantial Espejo project, which is located in southern Argentina. As a result of the acquisition, Pan American became 100% owner of the project. The project is being operated through two Argentine companies, Minera Triton Argentina S.A. (“MTA”) and Compania Minera Alto Valle S.A. (“Alto Valle”).

     The Manantial Espejo property consists of 17 mineral concessions granted by the Mining Authority of the Province of Santa Cruz to MTA and Alto Valle, covering a total of 25,533 hectares and extending approximately 36 kilometres east-west and 19 kilometres north-south. The mineral concessions forming Manantial Espejo are, by law, subject to minimum expenditure requirements with respect to which Pan American had entered an alternate agreement with the government of Argentina, such agreement Pan American believes that MTA has continuously been in compliance with. The good standing of the mineral concessions held by each of MTA and Alto Valle, and which make up the Manantial Espejo property, were confirmed by the Mining Authority of Santa Cruz in February 2006. In March 2006, the Argentine government approved the Environmental Impact Statement submitted to it by Pan American, effectively recognizing MTA and Alto Valle’s title to the property and authorizing construction of the mine. In April 2006 initial mine development activities were initiated.

     The property includes ownership of 3 surface properties purchased by MTA to facilitate support and improve the performance of its mining and exploration activities. These surface rights cover an area of 43,207 hectares and at this time all mining and processing related activities occur within these properties.

     Location, Access, Climate and Infrastructure

     The Manantial Espejo property is located in the Province of Santa Cruz, Argentina, centered at the geographical coordinates of 69º 30’ west longitude and 48º 46’ south latitude. The nearest major city is Puerto San Julian, located on the Atlantic coast, 160 kilometres east of the property. Puerto San Julian has a population of 5,500. The main access is via the provincial Route 25, a wide gravel secondary road that connects the project with Puerto San Julian. Access to the site is by an 8 kilometre gravel road off provincial highway Route 25.

     The climate at the project area is dry to arid continental. The average monthly temperatures vary between 1°C (June and July) and 15°C (January and February). This area of Argentina is well known for fierce westerly winds, particularly from August to October when westerly daily winds can gust to between 120 to 170 kph. The highest average monthly precipitation at Manantial Espejo occurs in the month of June, with 21 mm. Snow frequently accumulates on site between June and August, and infrequent snowfall events can range up to about 50 mm or more based on limited data.

     The topography of the region is generally characterized by relatively low-lying mesas with broad flat valleys, containing no, or poorly developed, drainage channels. To the north, the Deseado massif area is characterized by bedrock knolls and hills of moderate relief, with interspersed “deflationary” (probably wind-eroded) basins, containing flat-bottomed playas and often ephemeral shallow ponds and lakes with internal drainage. The project site is extremely arid and has very limited development of soils and vegetation. The elevation of the project site is situated between 350 and 400 metres above sea level. The southern portion of the site is dominated by a broad, flat valley known as the Pampa which trends east-southeast and lies between the Deseado Massif to the north and a volcanic plateau to the south. Both the Pampa and the mesa on the southern portion of the camp are largely formed of Tertiary and Quaternary glacially-derived gravel and cobble deposits.

     In April 2006 Pan American initiated development activities at the site consisting of installation of mine dewatering wells, access road improvements, and preparation of the Maria West underground access ramp. By year-end, the project site has been prepared for construction which includes the access road, numerous mine dewatering and piezometer water wells, a weather station, fully developed portal and 108 metre Mario West underground access ramp, temporary underground mine equipment maintenance facility, and a box cut for collaring the Melissa underground ramp. In addition, there are surface properties which include a ranch house with cafeteria, communications equipment, core processing and storage facilities, and dormitories.

     In March 2006 MTA signed an agreement with the Federal Government of Argentina and the Province of Santa Cruz to bring grid electrical power to the town of Gobernador Gregores. This powerline will also provide power for the Manantial Espejo project at the Argentine Industrial tariff rates. The Company believes this powerline installation will be sufficient for the requirements of the development of the project. The Company also believes that the mine dewatering requirements will provide sufficient water for the planned development of the project.

     During the operational phase of the project, it is estimated that approximately 400 direct work positions will be required. Given the extreme sparse population of the region, the Company is undertaking extensive human resource development of the potential workforce in the region, the Province, and at the national level in addition to recruiting experienced personnel necessary for the development and eventual operation of the mine.

     Royalties and Encumbrances

     Production from the Manantial Espejo property is subject to royalties to be paid to Barrick according to the following: (i) 60 cents per metric tonne of ore mined from the property and fed to process at a mill or leaching facility with a maximum of 1 million tonnes; and (ii) one-half of one percent (0.5%) of net smelter returns derived from the production of minerals from the property.

     In addition, MTA is required to negotiate a royalty payable to the Province of Santa Cruz essentially applied against the operating cash flows of the project, which is dependent on the degree of metal extraction at the site up to a maximum of 3% operating cash flow.

     No reclamation bond is currently required for mining operations in Argentina. A preliminary reclamation plan was developed for the project and included in the Environmental Impact Statement submitted to the Argentine Government during 2006. This plan will be updated as required. Manantial Espejo’s future environmental liability at December 31, 2006 has been estimated by the Company at $0.8 million.

     History

     Reconnaissance exploration on the Manantial Espejo property was first carried out in the 1970s by the Argentinean government and in 1989, ownership of the original interest in the mineral properties constituting the Manantial Espejo project was acquired by Mr. Roberto Schupbach. Pursuant to an agreement entered into in 1991 between Mr. Schupbach and Compania Minera San Jose S.A. (a wholly owned subsidiary of St. Joe Minerals), Mr. Schupback sold his mineral property rights to Minera San Jose. Later in the same year, St. Joe Minerals was acquired by Lac Minerals, and then in 1994 Barrick Exploraciones Argentina S.A. acquired Lac Minerals and assumed ownership.

     In 1996, Triton Mining Corporation (“Triton”) entered into an option agreement with Barrick to earn the right to acquire an 80 percent interest in the project for a total cost of $2,500,000, such right Triton then assigned to its wholly owned subsidiary Minera Triton Argentina S.A. (“MTA”).

     In 1998, MTA completed making the required payments under the option agreement. Barrick and MTA subsequently incorporated Compania Minera Alto Valle for the purpose of holding beneficial title to the properties, and pursuant to a shareholders’ agreement, Barrick held 20 percent and MTA held 80 percent of the shares of Alto Valle, respectively, and MTA was designated operator of the project.

     In 1998, Blackhawk Mining Inc. (“Blackhawk”) purchased all of the issued shares of Triton, which was a public company with shares traded on the Toronto Stock Exchange.

     Also, in 1998, Silver Standard Resources (“SSR”) entered into an option agreement with Triton, a wholly owned subsidiary of Blackhawk, to acquire a 50% interest in MTA. Then, in April of 2001, SSR acquired Barrick’s 20% interest in Alto Valle (2,400 shares), half of which it agreed to sell to Blackhawk in consideration for an interest in an unrelated mining venture.

     In 2002, SSR acquired Triton’s remaining 50% interest in MTA, as well as Blackhawk’s 1,200 shares in Alto Valle. Concurrently, SSR agreed to sell to Pan American 50% of the shares of MTA and half of its shares (1,200) it held in Alto Valle directly. The Company acquired this 50% interest in the project for a purchase price of $1,912,433, which consisted of a cash payment in the amount of $662,433 and a transfer of 231,511 common shares in the capital of the Company valued at $1,250,000. In addition, the Company agreed to pay 50% of $200,000 in order to eliminate a 1.2% net smelter return royalty payable by SSR to Blackhawk and agreed to fund the first $3 million of joint venture expenditures following the issuance of a production notice. In March 2006, the Company negotiated and entered into a purchase agreement with SSR to acquire SSR’s 50% interest in MTA and Alto Valle, respectively, thus becoming a 100% owner of the Manantial Espejo project.

     In March 2006, Pan American completed a Feasibility Study and 43-101 Technical Report for the Manantial Espejo Project based upon the revised resource model, combination open pit and underground mine plan, and a conventional milling and leaching circuit. A number of consulting firms were engaged to collaborate on the

study, including M3 Engineering & Technology Corporation, Geologic Resource Specialists, Snowden Mining Industry Consultants, and Ground Water International S.A.C.

     In March 2006, the Company’s board of directors approved a $130.4 million project to construct and initiate operations of the Manantial Espejo mine. Simultaneously, the Company received approval of the Environmental Impact Statement from the Santa Cruz Province of Argentina and signed an agreement with the Federal Government of Argentina and the Province of Santa Cruz to bring grid electrical power to the town of Gobernador Gregores with a sub-connection to Manantial Espejo.

     In April 2006, the Company completed the purchase of SSR’s 50% Joint Venture interest in the Manantial Espejo project for 1.95 million common shares of the Company. Pursuant to the purchase, the Company acquired 100% interest in MTA and Alto Valle, respectively, thus becoming a 100% owner of the Manantial Espejo project.

     In June 2006, MTA entered an agreement with Ausenco International Pty Ltd of Queensland, Australia to complete Basic Engineering Design and long lead item procurement services for the processing plant and site infrastructure components of the Project. By year-end 2006, MTA was in negotiations with Ausenco to extend these services to an EPCM agreement for the project. In addition, MTA entered into an agreement with Montgomery Watson Harza of Buenos Aires, Argentina to provide EPCM services for the tailings pond. By year-end 2006 detailed design had been completed and initial site preparation had begun. In April 2006 mine development activities were initiated. Activities during 2006 included the following: (i) construction of project access and other critical mine construction roads; (ii) upgrade and expansion of the existing man-camp to support early construction; (iii) completing additional water exploration and installation of production mine supply and dewatering wells; (iv) Maria West underground portal and initial ramp development; (v) Melissa portal development, and the installation of a temporary mine equipment shop and warehouse facilities; (vi) purchase of all major underground and open pit mine equipment; (vii) recruitment of experienced management and operational staff who successfully initiated underground development at the Maria West and Melissa deposits; (viii) finalization of project infrastructure designs and solicitation of construction proposals; (ix) initiation of construction of a 30 home and a 12 unit apartment complex in Gobernador Gregores to support mine development and long term operations; (x) expanded administrative offices in Gobernador Gregores to support project construction; and (xi) award of major construction camp, camp catering and construction supply contracts.

     Geology and Mineralization

     Silver and base metal mineralization in the Manantial Espejo district is spatially and geotechnically related to a large bimodal igneous province, the Deseado Massif, which is dominated by acid volcanics and their resedimented products of the Chon Aike and La Matilde Formations (Upper Jurassic), and andesites of the Bajo Pobre Formation (Middle Jurassic). The older volcanics form the basement unit and are locally mineralized. The Chon-Aike and La Matilde Formations host mineralization, which occurs at the faulted contacts of volcanic facies as well as at contacts of volcanic stages.

     The ore deposits at the Manantial Espejo project are predominantly veins having short strike slip and larger down dip displacements. Styles of mineralization include massive quartz veins, vein breccias, sheeted and stockwork veining, and minor dissemination. Quartz is the main infill mineral, displaying distinctive textures indicating the overprinting of hydrothermal events which occurred in the area.

     Mineralization is interpreted as occurring at the intersection of west-northwest trending fault zones and arcuate structures that could be related to a possible volcanic center. Gold occurs mainly as electrum in pyrite while the silver occurs in a number of forms including argentiferous galena and silver sulphosalts. Sulfides account for up to 3 to 5% of the rock mass as veinlets and disseminations.

     Mineralization at Manantial Espejo is hosted in four main veins: the Maria Vein, Karina/Union Vein, Melissa Vein and Concepcion Vein. The majority of the mineralization outlined to date is in the Maria Vein. The vein is a thick multiphase silica vein exposed on surface for more than 1.0 kilometre and has been intersected at a depth of up to 275 metres. This vein averages 7.8 metres in true thickness width ranging from 0.63 metres to 20 metres. The vein is open to the east and at depth.

     The Maria Vein exhibits two quartz textures; older quartz which may also contain grey silica, amethyst and vuggy quartz and younger sulphide-rich vein quarts breccia that often crosscuts the earlier vein and carry fragments of it. Sulphide content is low and is primarily three to five percent pyrite. Minor amounts of galena, sphalerite, chalcopyrite, bornite, chalcocite and covellite have been observed. The Maria vein structure shows excellent continuity, with little evidence for significant transverse fault offsets. Combined outcrop and drill data show vein continuity over 1,000 metres along strike and over 250 metres along dip. Ore-grade mineralization of the vein is less continuous. Open pit ore-grade zones measure tens to hundreds of metres in longitudinal dimension. Underground ore-grade zones measure tens of metres in longitudinal dimension, with over 100 metres of vertical extent in the Maria West area. Variograms and correlograms indicate mineralization continuity on the order of fifty (50) to one hundred (100) metres for both gold and silver.

     Silver occurs as electrum along with minor amounts of argentite, acanthite, sulfosalts, and prousite-pyrargerite. Gold occurs as electrum inclusions contained in pyrite. Very minor visible gold in the 200-micron size has been observed in drill core along goethite-coated fractures.

     The Karina/Union Vein is exposed on surface for a distance of 850 metres and has been drilled to a depth of 150 metres. The host rocks, alteration and mineralogy of the vein is similar to the Maria Vein. Several interconnected high grade silver-gold epithermal veins produce drill intersections in excess of 20 metre true widths.

     The Melissa Vein has a faint surface expression that rarely outcrops. The trend of the 1.5 to 2.5 metre-wide high-grade silver-gold epithermal Melissa system has an 80 degree strike with a steep northerly dip. The mineralization and host geology is very similar to that encountered at the Maria Vein. Structurally, Melissa is thought to be the extensional component to the Maria shear system. The Melissa Vein has been defined by drill holes along a 300 metre strike length and 200 metre down dip.

     The Concepcion Vein is a single quartz vein. Mineralization occurs over a strike length of 600 metres and is open at depth and at both ends. The host rocks, mineralogy and alteration are similar to the other veins on the property.

     Exploration, Drilling, Sampling and Analysis

     Reconnaissance exploration on the Manantial-Espejo property was first carried out in the 1970s by the Argentinean government.

     Exploration on the property was advanced in 1996 by Barrick, which completed 62 diamond drill holes on the property totaling 9,653 metres on the Maria Vein. In 1997, an additional forty two core drill holes were completed totaling 6,795 metres and Kilborn Engineering Pacific Ltd. (“Kilborn”) was retained to prepare a pre-feasibility study for the construction of an open pit mine and cyanidation mill processing facility to treat and recover silver and gold from the Maria Vein resource.

     Drilling on the Manantial Espejo property has been accomplished using diamond core, reverse circulation and wagon drilling. For the entire Manantial property, this drilling totals 1,043 drill holes and approximately 93,867 metres. The diamond core samples were considered to be of superior quality and representative of the deposits. Therefore, with the exception of five reverse circulation holes in Maria, recent resource modeling evaluations have

been based upon core samples from 662 diamond drill holes representing approximately 65,896 metres. The typical core sampling procedure is to half-saw the HQ core after descriptive geological and geotechnical logging. Half of the core is submitted for analysis, while the remaining half is stored on the Manantial Espejo site.

     All MTA core has been HQ diameter (approximately 6cm), with the exception of re-entry into Barrick holes for deepening, for which NQ diameter was used. Diamond drill holes are located and oriented by geologists in the field to obtain drill spacing in the 25 to 50 metre range on vein, with the closer spacing in the higher grade zones.

     Project drilling, sample handling, assaying, data handling, and resource modeling were reviewed in April 2001 on behalf of SSR by Pincock, Allen, and Holt (PAH), mining consultants, who found that assaying and security procedures to date had been carried out according to accepted industry standards using accepted practices.

     In 2003, a 4,472 metre diamond drilling program was completed in the Maria and Karina-Union veins focusing on gathering geotechnical stability data.

     In 2005, MTA completed 20,832 metres (187 holes) of additional diamond core and RC drilling to in-fill selected areas of known resources, investigated potential for economic mineralization outside of the current resource area, continued the water exploration program, and improved the geotechnical database for the feasibility tailings design. In 2006, a further 1,525 metres of diamond drilling were completed with 800 metres of that total for exploration and condemnation drilling and the remainder for geotechnical holes. RC drilling was conducted for water supply wells and for the mine dewatering both as part of the construction program.

     Manantial Espejo drilling data are used for metals exploration, resource modeling, geotechnical studies, metallurgical studies, and hydrological exploration/studies.

     Mineral Reserves

     A reserve summary by open pit bench was derived for each pit by extracting the pit volume out of the appropriate resource block model. Dilution was applied according to the mining method to be used. The open pit reserve was derived from the resource block model diluted for open pit mining. The underground reserve was derived from the resource block model diluted for the appropriate underground mining method. Underground reserves were extracted from these models by summarizing within the designed stoping panels. Any wall rock outside of the diluted wireframe or any inferred resource occurring within the underground stope volume was assigned zero grade.

     For the underground portion of the reserve, the Measured Mineral Resource was converted to a Probable Mineral Reserve. This is because there has not been an opportunity to confirm the assumptions made for stoping methods by direct observation from underground development. The geotechnical assumptions in particular are very important to the stoping method selection and for the amount of ground support that will be required in the development. Although it is believed that reasonable assumptions have been made based on experience, sound analysis and observation of the diamond drill core, there remains some degree of uncertainty in the stoping and development cost assumptions that would be realized by being able to make first hand observation on a larger scale underground operation.

Manantial Espejo Mineral Reserves ^{1, 2,3}

Reserve Category		Tonnes				Grams of Silver per Tonne				Grams of Gold per Tonne
Proven			3,489,410				151				2.05
Probable			3,701,109				181				2.66
TOTAL			7,190,519				166				2.36

     Mineral Resources

     Pan American’s management estimates that mineral resources at Manantial Espejo as at December 31, 2006 are as follows:

Manantial Espejo Mineral Resources^1,2

Resource Category		Tonnes				Grams of Silver per Tonne				Grams of Gold per Tonne
Measured			1,806,990				87				0.86
Indicated			2,287,968				94				0.84
Inferred			2,522,819				107				1.04

     Mining

     The optimum mine plan approach for the Manantial Espejo project consists of a combination of open pit surface and underground mining methods. The surface mining method proposed for the ore is conventional open pit mining using currently owned 54 tonne off road trucks and a mix of front end rubber tired loaders and track loading equipment. The considerable variation in dip and thickness of the various mineralized zones throughout the property require a number of different underground mining methods to be utilized to maximize the profitability and recovery of the mineral resources. The proposed underground mining operation consists of either long-hole, cut & fill, or shrinkage methods depending on vein geometry and accessibility. Essentially all the major open pit and underground mine equipment had been secured and either delivered, or in transit, by the end of 2006. A few of the minor support equipment needs for the mines will be procured in 2007.

     In some areas, it is proposed that the open pits will also be used for underground access via in-pit portals. In the design, the open pits will be excavated using five (5) metre high, horizontal benches. Ore and waste will be transported out of the pits by truck haulage via ramps built into the walls of the pits. Truck haulage will continue from the open pit ramp exit points on surface roads leading to waste dumps and the primary crusher ore feed stockpile. Open pits will be constructed for portions of the Maria, Karina-Union, and Concepción deposits. The proposed Maria pit is sub-divided into three (3) sub-pits.

     A total of 5 portals and associated declines will be required to access all of the underground mining reserves. Two are required for the Maria main structure, being Maria West and Maria East. Two are required for the Concepcion area. One is required for Melissa.

     Processing

     Ore from the Manantial Espejo deposits will be treated by conventional crushing, SAG/Ball mill grinding, bulk gravity concentration, intensive gravity concentrate agitation leaching, thickening, agitated cyanide leaching of the gravity tailings slurry, counter-current-decantation (“CCD”) thickening, Merrill Crowe zinc precipitation, sulfur dioxide cyanide neutralization, conventional pulp tailings disposal and conventional silver and gold doré bar production from melting of the Merrill Crowe precipitate. The nominal treatment rate will be 2,000 tonnes per day of ore on a 24-hour per day schedule.

     Procurement of the long-lead plant SAG mill and ball mill was initiated and a few minor pieces of used equipment were secured in 2006. The basic engineering of the plant and site infrastructure was completed and detailed engineering initiated during 2006 in preparation to begin construction activities in early 2007.

     Metallurgy

     Process testing of ore from the deposits have validated the proposed treatment method and determined key processing parameters. Representative drill core samples from 76 drillholes were used in metallurgical testing of the ore bodies. Grindability tests were completed on near surface trench samples and select core samples. Gravity separation and cyanidation testing performed by Lakefield Research of Lakefield, Ontario, Canada produced data was used as the basis for the metallurgical performance target of a commercial operation. Final flowsheet development and optimization testing was conducted on six individual samples and four composites; Karina-Unión and Maria Global, Melissa and Concepción.

     Independent third parties have been involved with various aspects of the project metallurgical evaluations.

     The following test data was analyzed by M3 Engineering & Technology Corporation in support of flowsheet development.

	•		Bottle Roll Whole Ore Cyanidation Leach
	•		Apparent Bulk Density
	•		Grinding
	•		Flotation
	•		Settling
	•		Filtration
	•		Gravity Concentration
	•		Electrowinning
	•		Thickening
	•		Hardness
	•		Abrasion
	•		Gravity Concentrate Leach
	•		Gravity Tail Leach

     Testwork was completed to evaluate several processing methods. All available test data was compiled into one database for review by M3 Engineering & Technology Corporation. Testwork not representative of the selected process was excluded from the M3 review, i.e., flotation. Testwork included in this review includes 46 gravity separation tests and 127 bottle roll cyanidation tests. Of the 127 bottle roll tests 55 were completed on whole ore samples, 32 on gravity concentrate samples, and 40 on gravity tails samples. This testing adequately characterizes the metallurgical variability of the deposits. The test data was arranged by ore deposit (Maria, Karina-Unión, Melissa, and Concepción).

     Results of the test work give the following optimum plant operating parameters:

	•		Grind size P80 = 105 µm
	•		Weight to concentrate= 21%
	•		Concentrate regrind size P80 = 53 µm
	•		Concentrate leach NaCN concentration => 2-2.5 g/L
	•		Concentrate leach pH = 10.5-11
	•		Concentrate leach retention time => 144 hours
	•		Tails leach NaCN concentration => 1.5-2.0 g/L
	•		Tails leach pH = 10.5-11
	•		Tails leach retention time => 76 hours

     The reagent consumptions were:

NaCN (Sodium Cyanide)

	•		Karina-Unión          0.4-0.5 kg/t ore
	•		Maria                      0.6-0.8 kg/t ore
	•		Melissa                    0.7 kg/t ore
	•		Concepción 0.6 kg/ t ore

CaO (Pebble Lime)

	•		Karina-Unión            0.7-0.8 kg/t ore
	•		Maria                         0.6-0.8 kg/t ore
	•		Melissa                      0.5 kg/t ore
	•		Concepción               0.5 kg/ t ore

     Based on the results of the test work the following recoveries can be expected for the Project ores:

	•		Silver recovery           93.6%
	•		Gold recovery            94.2%

     Metallurgical Ore Recoveries

		Au				Ag
Mine Head Grades (gpt)			2.82				189
Gravity Recovery (%)			58.3				60.2
Concentrate Leach Extraction (%)			99.2				99.4
Gravity Tail Leach Extraction (%)			88.6				85.3
Overall Extraction (%)			94.8				93.8
Soluble Loss (%)			0.6				0.2
Overall Recovery (%)			94.2				93.6

     Economic Analysis and Payback

     The total project capital cost, stated in 4th quarter 2005 US dollars, based on a fixed Argentine Peso to US dollar exchange rate of 3:1, and excluding any considerations for escalation is estimated to be $130.4 million and has been developed by a combination of sources and consolidated by the Company. A break-down of the estimated capital as disclosed in the 43-101 Technical Report for Manantial Espejo Project dated March 31, 2006, other than the working capital estimate that has been updated by the Company, is provided in the following table:

Initial Capital		(k-$)
Pre-Stripping/Develop		$	6,897
Open Pit Mine		$	8,984
Underground Mine		$	6,630
Plant		$	47,743
Infrastructure		$	17,274
Tailings		$	3,469
Owners Cost		$	10,017
Commissioning		$	2,671
EPCM – Administration		$	2,250
Spare Parts & Initial Fill		$	3,332
Working Capital		$	3,094
Sub-total		$	112,361
VAT Tax		$	18,070
TOTAL		$	130,431

Estimate includes $8,914k in contingency.

     Construction is expected to take approximately 15 to 18 months with completion expected in mid-2008.

     Environment & Permitting, Health & Safety

     Montgomery Watson Harza, MWH Global Inc. (“MWH”) performed an Environmental Impact Assessment (“EIA”) for the project as required under the laws of the Province of Santa Cruz and the Argentine Republic. The EIA includes all the items required under Argentine legislation, including a detailed report of the base line and the consulting steps taken with regard to the community and the authorities. The EIA performed for the project has not identified any severe environmental impact that could compromise its feasibility from the environmental viewpoint.

     The identified environmental impacts set out in the EIA are in almost all cases low to moderate and can be reasonably mitigated by the Environmental Care and Management Plan attached to the project. The balance between the unwanted effects that could arise by implementing the project, against the local benefits that would be obtained, is favourable to the performance of the project.

     The EIA, mine design, tailing design, utility company interface, and water development studies have been completed and the EIA was submitted to the Provincial Government in Argentina in November 2005 for its review. In March 2006, Pan American obtained clearance from the Province of Santa Cruz, Argentina, for the EIA. In addition, Pan American entered into an agreement with the Federal Government of Argentina and the Province of Santa Cruz to bring grid electrical power to the town of Gobernador Gregores with a subconnection to Manantial Espejo.

     MTA has been granted all of the requisite environmental permits necessary to proceed with development of the property. It is anticipated that an update of the EIA will be carried out in 2008 in order to identify any changes made to the proposed mine development. The estimated present value of expenditures at December 31, 2006 was $0.8 million.

     Manantial Espejo has recorded “0” lost time accidents to date.

     Capital Expenditures

     The capital cost estimate for construction of the Manantial Espejo mine totals approximately $131 million. Total commitments to December 31, 2006 were $42.1 million, including project expenditures of $23.5 million,

C. INVESTMENT AND RESOURCE PROPERTIES AND EXPENDITURES

     Pan American owns interests in investment and resource properties in Mexico and the United States. A brief description of the most advanced of these properties follows:

(i) United States Investment Properties

     Pan American owns interests in two investment properties in the United States, neither of which are material to the Company. A brief description of the resources of these properties follows:

Property

Location

Historical Estimates

Tonnes

g/mt Ag

Hog Heaven1

Montana

Unclassifed2

2,705,000

167

Hog Heaven1

Montana

Unclassified3

7,639,000

133

Waterloo4

California

Unclassified4

33,758,000

93

Category		Tons				Oz/Ton Ag				Oz/Ton Au
Proven reserves			2,981,690				4.88				0.018
Probable & possible reserves			904,200				10.40				0.020
Heap leach ore			316,100				1.56				0.014
Possible resources			4,500,000				2.41				0.020
Inferred resources			2,700,000				4.44				0.022

Mineral Property Expenditures

     The following table sets out Pan American’s acquisition, exploration and development expenditures for the periods indicated:

Years Ended December 31
(in thousands of U.S. dollars)
				2006				2005				2004
Acquisition		Morococha							—				36,871
		Manantial Espejo			47,549
					47,549				—				36,871
Development		Huaron			5,266				4,969				5,543
		Quiruvilca			1,848				2,262				984
		Morococha			10,512				8,446				—
		La Colorada			7,994				5,453				8,474
		Alamo Dorado			51,331				35,548				1,676
		Manantial Espejo			22,758				—				—
		San Vicente			5,013				1,899				—
		Other			583				—				—
					105,305				59,638				17,043
Exploration		Huaron			456				—				—
		Quiruvilca			434				—				—
		Morococha			1,477				691				—
		La Colorada			2,266				—				—
		Alamo Dorado			474				226				—
		Manantial Espejo			201				2,022				2,663
		San Vicente			1,610				116				482
		Other			1,122				642				612
					8,040				3,697				3,757
Investment		Waterloo			—				—				57
		Hog Heaven			—				—				24
													81

Metals Trading

     In the past, Pan American has engaged in forward sales of base metals production from its mines.

     During 2004, the Company settled 16,260 tonnes of zinc forward sale contracts at an average price of $943 per tonne and 10,290 tonnes of lead forward sale contracts at an average of $728 per tonne.

     During 2005, the Company settled 15,800 tonnes of zinc forward sale contracts at an average price of $1,105 per tonne and 4,000 tonnes of lead forward sale contracts at an average price of $726 per tonne.

     During 2006, the Company settled 13,400 tonnes of zinc forward sale contracts at an average price of $1,553 per tonne. The Company settled 6,000 tonnes of zinc forward purchase contracts at an average price of $2,987 per tonne.

     At December 31, 2006 Pan American did not have any open base metal forward contracts.

     Pan American does not engage in any forward sale of its silver production.

RISKS RELATED TO PAN AMERICAN’S BUSINESS

Metal Price Fluctuations

     The majority of the Company’s revenue is derived from the sale of silver, zinc, and, to a lesser degree, copper and lead and gold, and therefore fluctuations in the price of these commodities represents one of the most significant factors affecting the Company’s operations and profitability. The price of silver and other metals are affected by numerous factors beyond the Company’s control, including:

	•		levels of supply and demand;
	•		global or regional consumptive patterns;
	•		sales by government holders;
	•		metal stock levels maintained by producers and others;
	•		increased production due to new mine developments and improved mining and production methods;
	•		speculative activities;
	•		inventory carrying costs;
	•		availability and costs of metal substitutes;
	•		international economic and political conditions;
	•		interest rates;
	•		currency values; and
	•		inflation.

     Declining market prices for these metals could materially adversely affect the Company’s operations and profitability.

Foreign Operations

     The majority of the Company’s current operations are conducted by its subsidiaries in Peru, Mexico, Bolivia and Argentina, and all of the Company’s current production and revenue is derived from its operations in Peru, Mexico and Bolivia. As Pan American’s business is carried on in a number of foreign countries it is exposed to a number of risks and uncertainties, including:

	•		terrorism and hostage taking;
	•		military repression;
	•		expropriation or nationalization without adequate compensation;
	•		difficulties enforcing judgments obtained in Canadian or United States courts against assets located outside of those jurisdictions;
	•		labour unrest;
	•		high rates of inflation;
	•		changes to royalty and tax regimes;
	•		extreme fluctuations in currency exchange rates;
	•		volatile local political and economic developments; and
	•		difficulty with understanding and complying with the regulatory and legal framework respecting the ownership and maintenance of mineral properties, mines and mining operations.

     Local opposition to mine development projects has arisen in Peru in the past, and such opposition has at times been violent. In particular, in November 2004, approximately 200 farmers attacked and damaged the La Zanja

exploration camp located in Santa Cruz province, Peru, which was owned by Compania de Minas Buenaventura and Newmont Mining Corporation. One person was killed and three injured during the protest. There can be no assurance that such local opposition will not arise in the future with respect to the Company’s foreign operations. If the Company were to experience resistance or unrest in connection with its foreign operations, it could have a material adverse effect on the Company’s operations or profitability.

     In late 2005, a national election in Bolivia resulted in the emergence of a left-wing government. This has caused some concerns amongst foreign companies doing business in Bolivia due to the government’s policy objective of nationalizing the oil and gas industries. There is no certainty the government will not take steps to implement such measures targeting the mining industry. Risks of doing business in Bolivia include being subject to higher taxes, and mining royalties, some of which have already been proposed or threatened, revision of contracts and threatened expropriation of assets, all of which could have a material adverse impact on the Company’s operations or profitability.

Governmental Regulation

     Pan American’s operations and exploration and development activities are subject to extensive Canadian, United States, Peruvian, Mexican, Bolivian, Argentinean and other foreign federal, state, provincial, territorial and local laws and regulations governing various matters, including:

	•		environmental protection;
	•		management and use of toxic substances and explosives;
	•		management of natural resources;
	•		exploration, development of mines, production, and post-closure reclamation;
	•		exports;
	•		price controls;
	•		taxation;
	•		mining royalties;
	•		labour standards and occupational health and safety, including mine safety; and
	•		historic and cultural preservation.