Edgar Filing: PAN AMERICAN SILVER CORP

form6ka.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K/A

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For the month of,	June		2011
Commission File Number	000-13727

Pan American Silver Corp

(Translation of registrant’s name into English)

1500-625 Howe Street, Vancouver BC Canada V6C 2T6

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40F:

Form 20-F Form 40-F X

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes No X

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-_______________

EXPLANATORY NOTE

This Form 6-K/A is being filed to amend the Form 6-K, originally filed with the Commission on May 20, 2011 and which included Pan American Silver Corp.'s (the "Company" or the "Registrant") unaudited interim consolidated financial statements and notes thereon for the first quarter ending March 31, 2011. The Company is filing this Amendment because the original unaudited condensed interim consolidated financial statements and notes thereto for the first quarter ending March 31, 2011 did not contain the IFRS to Canadian GAAP reconciliation of equity as at March 31, 2010, as required by IFRS 1 paragraph 32(a)(i). The Amendment includes the disclosure required by IFRS 1 paragraph 32(a)(i) in Note 2. All other information in the original statements remains unchanged.

DOCUMENTS INCLUDED AS PART OF THIS REPORT

Document

1	Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements and Notes for the First Quarter Ending March 31, 2011.

This report on Form 6-K/A is incorporated by reference into the Registrant’s outstanding registration statements on Form F-10 (No. 333-164752) and on Form S-8 (No. 333-149580) that have been filed with the Securities and Exchange Commission.

Document 1

Amended and Restated

AMENDED AND RESTATED UNAUDITED CONDENSED INTERIM

CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

FOR THE FIRST QUARTER ENDING MARCH 31, 2011

EXPLANATORY NOTE

Explanation of amendment to Pan American Silver Corp.’s unaudited condensed interim consolidated financial statements for the period ended March 31, 2011:

The original unaudited condensed interim consolidated financial statements filed on SEDAR on May 18, 2011 did not contain the IFRS to Canadian GAAP reconciliation of equity as at March 31, 2010, as required by IFRS 1 paragraph 32(a)(i). These amended and restated unaudited condensed interim financial statements have been revised to include the disclosure required by IFRS 1 paragraph 32(a)(i) in note 2.

All other information contained in the originally filed unaudited condensed interim financial statements remains unchanged. Except where specifically noted to the contrary, these amended and restated unaudited condensed interim consolidated financial statements do not reflect events occurring after the filing of the original unaudited condensed interim consolidated financial statements, or modify or update the disclosure therein, in any way other than as required to reflect the amendments set forth herein.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Condensed Consolidated Statements of Financial Position

(Unaudited in thousands of U.S. dollars)

	March 31, 2011		December 31, 2010		January 1, 2010
Assets
Current assets
Cash	$	171,873	$	179,921	$	100,474
Short-term investments at fair value (Note 6)		225,333		180,583		92,623
Trade and other receivables		74,141		66,893		66,059
Income taxes receivable		658		87		12,132
Inventories (Note 7)		121,329		106,854		93,446
Derivative financial instrument gains		297		-		160
Prepaids and other current assets		6,921		6,520		2,568
		600,552		540,858		367,462
Non-current assets
Mineral, Property, plant and equipment, net (Note 8)		1,160,973		1,161,323		1,177,076
Long-term refundable tax, net		32,116		28,171		11,909
Deferred tax assets		6,439		6,826		7,351
Other assets (Note 9)		1,577		1,618		6,521
Total Assets	$	1,801,657	$	1,738,796	$	1,570,319

Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 10)	$	79,087	$	77,780	$	91,211
Derivative financial instrument losses		78		-		-
Provisions (Note 11)		3,327		3,450		4,948
Current income tax liabilities		25,268		29,699		4,021
		107,760		110,929		100,180
Non-current liabilities
Provisions (Note 11)		74,377		74,016		57,273
Deferred tax liabilities		49,771		49,804		33,872
Share purchase warrants		100,171		127,890		43,919
Other long-term liabilities (Note 12)		28,395		26,148		20,788
Total Liabilities		360,474		388,787		256,032

Equity
Capital and reserves (Note 13)
Issued capital		1,278,337		1,276,887		1,206,647
Share option reserve		7,332		7,022		6,349
Accumulated other comprehensive income		7,382		7,698		1,452
Retained earnings		139,217		49,751		83,875
Total Equity attributable to equity holders of the Company		1,432,268		1,341,358		1,298,323
Non-controlling interest		8,915		8,651		15,964
Total Equity		1,441,183		1,350,009		1,314,287
Total Liabilities and Equity	$	1,801,657	$	1,738,796	$	1,570,319
See accompanying notes to the unaudited condensed interim consolidated financial statements.

APPROVED BY THE BOARD ON MAY 18, 2011

“signed”

Ross Beaty, Director

“signed”

Geoff A. Burns, Director

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Condensed Consolidated Income Statements

(Unaudited in thousands of U.S. dollars)	Three months ended March ,
	2011			2010

Revenue (Note 16)	$	190,481		$	135,819
Cost of sales (Note 14)		(94,463	)		(98,042	)
Mine operating earnings		96,018			37,777

General and administrative		(3,734	)		(3,172	)
Exploration and project development		(2,918	)		(5,452	)
Foreign exchange gains		525			523
Gain (loss) on commodity and foreign currency contracts		219			(703	)
Gain (loss) on sale of assets		58			(14	)
Other income		1,007			1,246
Earnings from operations		91,175			30,205
Gain on derivatives (Note 13)		27,523			9,148
Investment income		358			105
Interest and finance expense		(1,383	)		(1,694	)
Earnings before taxes		117,673			37,764
Income taxes (Note 17)		(24,994	)		(11,607	)
Net earnings for the period	$	92,679		$	26,157

Attributable to:
Equity holders of the Company	$	92,161		$	26,276
Non-controlling interest		518			(119	)
	$	92,679		$	26,157

Earnings per share attributable to common shareholders (Note 15)
Basic earnings per share	$	0.86		$	0.25
Diluted earnings per share	$	0.86		$	0.25
Cash dividends declared	$	0.025		$	0.025
Weighted average shares outstanding (in 000’s) Basic		106,985			106,686
Weighted average shares outstanding (in 000’s) Diluted		107,399			107,228

Condensed Consolidated Statement of Comprehensive Income
(Unaudited In thousands of U.S. dollars)
Net earnings for the period	$	92,679		$	26,157

Unrealized net (loss) gains on available for sale non-monetary securities (net of zero dollars tax)		(103	)		1,101
Reclassification adjustment for net loss included in earnings		(213	)		(44	)

Total comprehensive income for the period	$	92,363		$	27,214

Total comprehensive income attributable to:
Equity holders of the Company	$	91,845		$	27,333
Non-controlling interest		518			(119	)
	$	92,363		$	27,214

See accompanying notes to the unaudited condensed interim consolidated financial statements.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited in thousands of U.S. dollars)	Three months ended March 31,
	2011			2010
Cash flow from operating activities
Net earnings before taxes	$	117,673		$	37,764

Depreciation, depletion and amortization		19,318			18,917
Accretion on closure and decommissioning provision		807			917
Unrealized loss on foreign exchange		1,162			296
Stock-based compensation expense		890			763
Unrealized (gain) loss on commodity contracts		(219	)		737
Gain on derivatives		(27,523	)		(9,148	)
(Gain) Loss on sale of assets		(58	)		14
Operating cash flows before movements in working capital and income taxes paid		112,050			50,260

Changes in assets and liabilities:
Trade and other receivables		(7,693	)		14,286
Inventories		(13,866	)		3,455
Prepaid expenditures		(401	)		(1,413	)
Accounts payable and accrued liabilities		(417	)		(12,111	)
Provisions		(569	)		(334	)
Cash generated from operations		89,104			54,143

Income taxes paid		(29,639	)		(5,497	)
Net cash generated from operating activities		59,465			48,646

Cash flow from investing activities
Payments for property, plant and equipment		(20,046	)		(17,830	)
Net (purchases) and sales of short term investments		(44,556	)		(666	)
Proceeds from sale of property, plant and equipment		61			145
Net refundable tax paid and other asset expenditures		(4,165	)		(3,120	)
Net cash used in investing activities		(68,706	)		(21,471	)

Cash flow from financing activities
Proceeds from issue of equity shares		1,118			133
Net repayments from advances on metal shipments		-			(5,646	)
Advances received for construction and equipment leases		2,854			-
Dividends paid		(2,695	)		(2,672	)
Distributions by subsidiaries to non-controlling interests		(254	)		-
Net cash generated from (used in) financing activities		1,023			(8,185	)
Net decrease in cash		(8,218	)		18,990
Cash at the beginning of the year		179,921			100,474
Effects of exchange rate changes on the balance of cash held in foreign currencies		170			270
Cash at the end of the period	$	171,873		$	119,734

Supplemental Cash Flow Information
Interest paid	$	-	$	-
Significant Non-Cash Items
Equity issued to acquire non-controlling interest of Aquiline Resources Inc. (Note 8)	$	-	$	43,532
Warrants issued to acquire non-controlling interest of Aquiline Resources Inc. and classified as a liability	$	-	$	3,986
Stock compensation issued to employees and directors	$	-	$	761

See accompanying notes to the unaudited condensed interim consolidated financial statements.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Condensed Consolidated Statements of Shareholders' Equity

For the three months ended March 31, 2011

(Unaudited in thousands of U.S. dollars)

	Attributable to shareholders of the Company
	Issued shares		Issued capital		Share option reserve			Accumulated other comprehensive income			Retained earnings			Total			Non- controlling interest			Total equity
Balance, January 1, 2010		105,117,120	$	1,206,647	$	6,349		$	1,452		$	83,875		$	1,298,323		$	15,964		$	1,314,287
Issued on the exercise of stock options		7,308		187		(54	)		-			-			133			-			133
Issued as compensation		31,824		761		-			-			-			761			-			761
Issued to acquire non-controlling interest of Aquiline Resources Inc.		1,747,738		43,532		-			-			(39,809	)		3,723			(7,709	)		(3,986	)
Other decrease in non-controlling interests		-		-		-			-			-			-			(608	)		(608	)
Stock-based compensation on option grants		-		-		649			-			-			649			-			649
Other comprehensive income		-		-		-			1,057			-			1,057			-			1,057
Dividend declared		-		-		-			-			(2,672	)		(2,672	)		-			(2,672	)
Earnings (loss) for the period		-		-		-			-			26,276			26,276			(119	)		26,157
Balance, March 31, 2010		106,903,990	$	1,251,127	$	6,944		$	2,509		$	67,670		$	1,328,250		$	7,528		$	1,335,778
Issued on the exercise of stock options		443,279		8,816		(1,601	)		-			-			7,215			-			7,215
Issued as compensation		45,094		1,729		-			-			-			1,729			-			1,729
Issued on the exercise of warrants		399,005		15,215		-			-			-			15,215			-			15,215
Distributions by subsidiaries to non-controlling interests		-		-		-			-			-			-			(992	)		(992	)
Stock-based compensation on option grants		-		-		1,679			-			-			1,679			-			1,679
Other comprehensive income		-		-		-			5,189			-			5,189			-			5,189
Dividend declared		-		-		-			-			(5,354	)		(5,354	)		-			(5,354	)
Earnings (loss) for the period		-		-		-			-			(12,565	)		(12,565	)		2,115			(10,450	)
Balance, December 31, 2010		107,791,368	$	1,276,887	$	7,022		$	7,698		$	49,751		$	1,341,358		$	8,651		$	1,350,009
Issued on the exercise of stock options		26,370		675		(135	)		-			-			540			-			540
Issued on the exercise of warrants		16,266		775		-			-			-			775			-			775
Stock-based compensation on option grants		-		-		445			-			-			445			-			445
Distributions by subsidiaries to non-controlling interests		-		-		-			-			-			-			(254	)		(254	)
Other comprehensive income		-		-		-			(316	)		-			(316	)		-			(316	)
Dividend declared		-		-		-			-			(2,695	)		(2,695	)		-			(2,695	)
Earnings for the period		-		-		-			-			92,161			92,161			518			92,679
Balance, March 31, 2011		107,834,004	$	1,278,337	$	7,332		$	7,382		$	139,217		$	1,432,268		$	8,915		$	1,441,183

See accompanying notes to the unaudited condensed interim consolidated financial statements.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

1.	Nature of Operations

Pan American Silver Corp. and its subsidiary companies (collectively, the “Company”, or “Pan American”) are engaged in silver mining and related activities, including exploration, extraction, processing, refining and reclamation. The Company’s primary product (silver) is produced in Peru, Mexico, Argentina and Bolivia. The Company has current project development activities in Peru, Mexico and Argentina, and exploration activities throughout South America and Mexico.

2.	First Time Adoption of IFRS

These are the Company’s first unaudited condensed consolidated interim financial statements prepared in accordance with IAS 34 ‘Interim Financial Reporting’ (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standard Board (“IASB”) and Interpretations of the IFRS Interpretations Committee (“IFRIC”). The date of transition to IFRS is January 1, 2010.

The Company’s IFRS accounting policies are presented in Note 3 and have been applied in preparing the financial statements for the part of the period covered by the Company’s first IFRS consolidated annual financial statements for the year ending December 31, 2011, the comparative information and the opening statement of financial position at the date of transition. The effects of the transition to IFRS on equity, total comprehensive income and income statements are presented on the next page.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

(Note 2 continued)

Condensed Consolidated Statement of Financial Position Reconciliation

		December 31, 2010							As at January 1, 2010 (Date of transition)
	Notes	Canadian GAAP		Effect of Transition to IFRS			IFRS		Canadian GAAP		Effects of Transition to IFRS			IFRS Opening
Assets
Current assets
Cash		$	179,921	$	-		$	179,921	$	100,474	$	-		$	100,474
Financial assets at fair value			180,583		-			180,583		92,623		-			92,623
Trade and other receivables			66,893		-			66,893		66,059		-			66,059
Income taxes receivable			87		-			87		12,132		-			12,132
Inventories			106,854		-			106,854		93,446		-			93,446
Derivative financial instruments			-		-			-		160		-			160
Future income taxes	i(d)		8,172		(8,172	)		-		4,993		(4,993	)		-
Prepaids and other current assets			6,520		-			6,520		2,568		-			2,568
Total Current Assets			549,030		(8,172	)		540,858		372,455		(4,993	)		367,462
Non-current assets
Property, plant and equipment, net	i(b),ii(a)		1,492,538		(331,215	)		1,161,323		1,457,724		(280,648	)		1,177,076
Deferred tax assets	i(c), i(d)		1,251		5,575			6,826		-		7,351			7,351
Other assets			1,618		-			1,618		6,521		-			6,521
Long-term refundable tax receivable			28,171		-			28,171		11,909		-			11,909
Total Assets		$	2,072,608	$	(333,812	)	$	1,738,796	$	1,848,609	$	(278,290	)	$	1,570,319

Liabilities
Current liabilities
Accounts payable and accrued liabilities	vii	$	81,230	$	(3,450	)	$	77,780	$	96,159	$	(4,948	)	$	91,211
Provisions	vii		-		3,450			3,450		-		4,948			4,948
Current income tax liabilities			29,699		-			29,699		4,021		-			4,021
Future income taxes	i(d)		4,312		(4,312	)		-		-		-			-
			115,241		(4,312	)		110,929		100,180		-			100,180

Non-current liabilities
Provisions	ii		69,463		4,553			74,016		62,775		(5,502	)		57,273
Deferred tax liabilities	i		331,228		(281,424	)		49,804		305,820		(271,948	)		33,872
Share purchase warrants	iii		-		127,890			127,890		-		43,919			43,919
Other long-term liabilities	vii		28,614		(2,466	)		26,148		20,788		-			20,788
Total Liabilities			544,546		(155,759	)		388,787		489,563		(233,531	)		256,032

Non-controlling interest	iv		7,774		(7,774	)		-		15,256		(15,256	)		-

Shareholders’ Equity
Capital and reserves
Issued capital	iii		1,272,860		4,027			1,276,887		1,206,647		-			1,206,647
Share option reserve	iii		45,303		(38,281	)		7,022		47,293		(40,944	)		6,349
Accumulated other comprehensive income	vi		9,346		(1,648	)		7,698		1,618		(166	)		1,452
Retained earnings	i-vi,ix		192,779		(143,028	)		49,751		88,232		(4,357	)		83,875
			1,520,288		(178,930	)		1,341,358		1,343,790		(45,467	)		1,298,323
Non-controlling interest	iv		-		8,651			8,651		-		15,964			15,964
Total Equity			1,520,288		(170,279	)		1,350,009		1,343,790		(29,503	)		1,314,287
Total Liabilities and Equity		$	2,072,608	$	(333,812	)	$	1,738,796	$	1,848,609	$	(278,290	)	$	1,570,319

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

(Note 2 continued)

Condensed Consolidated Income Statements Reconciliation

		Three months ended March 31, 2010									Year ended December 31, 2010
		(The latest presented period under previous GAAP)
	Notes	Previous GAAP			Effect of Transition to IFRS			IFRS			Previous GAAP			Effect of Transition to IFRS			IFRS
Revenue	viii	$	132,375		$	3,444		$	135,819		$	631,986		$	14,567		$	646,553
Cost of sales	v,viii		(75,681	)		(22,361	)		(98,042	)		(305,696	)		(99,742	)		(405,438	)
Depreciation, depletion and amortization	v		(19,820	)		19,820			-			(86,483	)		86,483			-
Mine operating earnings			36,874			903			37,777			239,807			1,308			241,115

General and administrative			(3,172	)		-			(3,172	)		(17,109	)		-			(17,109	)
Exploration and project development			(5,452	)		-			(5,452	)		(24,527	)		-			(24,527	)
Asset retirement and reclamation	ii(a)		(732	)		732			-			(2,929	)		2,929			-
Doubtful accounts and inventory provision			-			-			-			(4,754	)		-			(4,754	)
Operating earnings			27,518			1,635			29,153			190,488			4,237			194,725

Interest and financing expense	ii(b)		(776	)		(918	)		(1,694	)		(2,061	)		(3,669	)		(5,730	)
Investment and other income			1,351			-			1,351			5,488			-			5,488
Foreign exchange gain	i(a)		3,018			(2,495	)		523			11,058			(9,372	)		1,686
Gain (loss) on derivatives	iii		-			9,148			9,148			-			(90,661	)		(90,661	)
Gain (loss) on commodity and foreign currency contracts			(703	)		-			(703	)		(237	)		-			(237	)
Gain (loss) on sale of assets			(14	)		-			(14	)		651			-			651
Earnings before taxes			30,394			7,370			37,764			205,387			(99,465	)		105,922

Non-controlling interests	iv		135			(135	)		-			(1,827	)		1,827			-
Income taxes	i(a-e)		(11,416	)		(191	)		(11,607	)		(90,987	)		772			(90,215	)
Net earnings for the period		$	19,113		$	7,044		$	26,157		$	112,573		$	(96,869	)	$	15,707

Attributable to:
Equity holders of the Company		$	-		$	26,276		$	26,276		$	-		$	13,711		$	13,711
Non-controlling interest			-			(119	)		(119	)		-			1,996			1,996
		$	-		$	26,157		$	26,157		$	-		$	15,707		$	15,707

Earnings per share
Basic earnings per share		$	0.18		$	0.07		$	0.25		$	1.05		$	(0.92	)	$	0.13
Diluted earnings per share		$	0.18		$	0.07		$	0.25		$	1.05		$	(0.92	)	$	0.13
Weighted average shares outstanding (in 000’s) Basic			106,686			-			106,686			106,969			-			106,969
Weighted average shares outstanding (in 000’s) Diluted			107,228			-			107,228			107,575			-			107,575

Condensed Consolidated Statement of Comprehensive Income Reconciliation

Net earnings for the period		$	19,113		$	7,044		$	26,157		$	112,573		$	(96,869	)	$	15,704
Unrealized net gains on available for sale non-monetary securities (net of zero tax)			1,903			(802	)		1,101			8,025			(1,481	)		6,544
Reclassification adjustments of net (gains) included in earnings			(44	)		-			(44	)		(297	)		-			(297	)
Total comprehensive income for the period		$	20,972		$	6,242		$	27,214		$	120,301		$	(98,350	)	$	21,951
Total comprehensive income attributable to:
Equity holders of the Company		$	-		$	27,333		$	27,333		$	-		$	19,955		$	19,955
Non-controlling interest			-			(119	)		(119	)		-			1,996			1,996
		$	-		$	27,214		$	27,214		$	-		$	21,951		$	21,951
See accompanying notes to these statements.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

(Note 2 continued)

Reconciliation of Total Equity as at March 31, 2010

		March 31, 2010
	Notes	Canadian GAAP		Effect of Transition to IFRS			IFRS

Shareholders’ Equity
Capital and reserves
Issued capital		$	1,251,127	$	-		$	1,251,127
Share option reserve	iii		51,873		(44,929	)		6,944
Accumulated other comprehensive income	vi		3,477		(968	)		2,509
Retained earnings	i-vi,ix		104,673		(37,003	)		67,670
			1,411,150		(82,900	)		1,328,250
Non-controlling interest	iv		-		7,528			7,528
Total Equity		$	1,411,150	$	(75,372	)	$	1,335,778

Notes to the IFRS reconciliation above:

i.	Deferred taxes

	The adjustments to deferred income tax assets and liabilities reflect the tax effects under IAS 12 Income Taxes:

	(a)	IAS 12 requires recognition of deferred income taxes for differences that arise on translation of non-monetary assets denominated in currencies other than the Company’s functional currency. The tax bases of these non-monetary assets are re-measured from historical rates to functional currency using current exchange rates. The difference as a result of change in exchange rates creates a deferred income tax adjustment. Under Canadian GAAP, the historical exchange rates were used and any differences that arose from re-measurement were recorded as foreign exchange gain or loss. The Company has mining properties in Argentina, Peru, Mexico and Bolivia with significant tax basis denominated in local currencies, the movement between the US dollar and these local currencies gives rise to changes in deferred income tax.

	(b)	Unlike Canadian GAAP, IAS 12 prohibits the recognition of deferred taxes on initial recognition of an asset or liability where the acquisition is not a business combination and neither accounting profit nor taxable profit were affected at the time of the transaction. Accordingly, in its opening statement of financial position, the Company has reversed the deferred income tax liabilities recognized on acquisition of the assets of Aquiline, Manantial Espejo and Alamo Dorado.

	(c)	The deferred income tax expense booked on the deferred component of the employee profit-sharing arrangement at some of the Company’s sites is different under IFRS. Unlike Canadian GAAP, the deferred component of this employee benefit liability is not recognized under IAS 19 Employee benefits.

	(d)	IAS 12 specifies the conditions under which an entity can offset both current and deferred tax assets and liabilities, and requires deferred taxes to be presented as current.

(e)	The tax effects of other IFRS adjustments.

ii.	Closure and decommissioning

	(a)	Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the closure provision is measured based on the best estimate of expenditure required to settle the obligation at the statement of financial position date using current discount rate and inflation assumptions; thus simplifying the calculation by removing the ‘layering’ concept used for Canadian GAAP. In addition, IFRS requires that the liability be re-measured at each reporting date versus the requirement in Canadian GAAP to re-measure in the event of changes in the amount or timing of cash flows required to settle the obligation.

	(b)	A reclassification of the accretion on the closure and decommissioning liability from operating expense to finance expense to comply with the presentation requirements of IAS 37.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

iii.	Share purchase warrants
	Reclassification of share purchase warrants that were presented as equity instruments under Canadian GAAP to derivative financial liability under IAS 39 Financial Instruments: Recognition and Measurement. Under IFRS, share purchase warrants with an exercise price denominated in a currency other than the Company's functional currency are classified and accounted for as financial liabilities and, as such, are measured at their fair values with changes in fair values included in net earnings.

iv.	Adjustments for non-controlling interest
	An adjustment to record the changes in non-controlling interests resulting from all the IFRS adjustments and reclassification of non-controlling interests to be included in the equity section under IFRS.

v.	Depreciation
	The adjustment to depreciation is a result of a change in the mineral, property, plant and equipment basis as a consequence of the changes to the closure and decommissioning liability at all the mine sites and changes related to IAS 12 Income Taxes as discussed above. In addition, a presentation adjustment to include depreciation and amortization expenses as part of cost of sales.

vi.	Foreign exchange gains or losses on available-for-sale monetary securities
	A reclassification of the unrealized gains or losses on available for sale monetary securities from other comprehensive income (in Canadian GAAP) to earnings for the period (to retained earnings on transition date) to comply with IAS 39 Financial Instruments: Recognition and Measurement.

vii.	Provisions
	A reclassification of the current portion of litigation provision from trade and other payables to provisions.

viii.	Royalty
	A reclassification of royalty expenses from revenue to cost of sales to comply with the definition of Revenue under IAS 18 Revenue.

ix.	Changes in ownership interests
	During the first quarter of 2010, the Company increased a controlling ownership interest in a business (Aquiline) by 7%. Under IFRS, changes in ownership interest that do not result in a loss of control are accounted for as equity transactions and the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Under the CGAAP policy of the entity, such changes were treated as step acquisitions requiring an increase in the carrying value of the consolidated business. An adjustment was required in the first quarter in order to adjust the IFRS financial statements for the impact of this GAAP difference and appropriately account for this change as an equity transaction under IFRS. Accordingly, a $39.8 million adjustment was charged to equity (within retained earnings) under IFRS for this period. This is disclosed in the statement of shareholders’ equity prepared under IFRS for the three months ended March 31, 2010.

Consolidated Statement of Cash Flows Reconciliation
The adoption of IFRS has not had an impact on the net cash flows of the Company. The changes made to the statements of financial position and income statements have resulted in reclassifications of various amounts on the statements of cash flows, however as there have been no changes to the net cash flows, no reconciliations have been presented.

First time Adoption Exemptions Applied
IFRS 1 First-time Adoption of International Financial Reporting Standards, which governs the first-time adoption of IFRS, in general requires accounting policies to be applied retrospectively to determine the

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

opening statement of financial position at the Company’s transition date of January 1, 2010, unless certain exemptions are applied. The exemptions that the Company has elected to apply are:

a.	Deemed Cost Exemption
	IFRS 1 provides an option that allows a first-time adopter to elect to use a previous GAAP revaluation of an item of property, plant and equipment at or before the date of transition to IFRSs as deemed cost at the date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to fair value. The Company had previously revalued the property, plant and equipment assets at Quiruvilca and La Colorada as a result of a Canadian GAAP impairment, and has elected these revalued amounts less subsequent depreciation as the deemed cost at the date of transition to IFRS.

b.	Decommissioning Liability Exemption
	IFRS 1 indicates that a first-time adopter may elect not to apply IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities retrospectively. The Company applied this election and accordingly measured the decommissioning liability as at the date of transition to IFRSs in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and estimated the amounts that would have been included in the cost of the related mining property, plant and equipment and recalculated the accumulated depreciation for those assets at January 1, 2010.

c.	Business Combination Exemption
	IFRS 1 allows a first-time adopter to avoid application of IFRS 3R Business Combinations retrospectively to business combinations that occurred before either the date of transition to IFRS or an alternative pre-transition date. The Company applied this exemption to business combinations that occurred prior to January 1, 2010.

d.	Share-Based Payment Exemption
	IFRS 1 gives a first-time adopter the option to not apply IFRS 2 Share-Based Payment to (i) equity instruments that were granted for the periods on or before November 7, 2002 or after November 7, 2002 but that vested before the date of transition to IFRS and (ii) liabilities arising from cash-settled share-based payment transactions if those liabilities were settled before January 1, 2005 or before the date of transition to IFRS. The Company elected to apply this exemption on its January 1, 2010 date of transition to IFRS.

e.	Leases Exemption
	IFRS 1 provides a first-time adopter with an option to not apply certain requirements under IAS 17 Leases retrospectively. The Company applied two exemptions and accordingly assessed whether an arrangement contains a lease on the basis of facts and circumstances existing at the date of transition to IFRS. Secondly, the Company did not reassess the determination of whether an arrangement contains a lease under IFRS if the determination made under Canadian GAAP gave the same outcome as that from the application of IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement Contains a Lease.

f.	Borrowing Costs Exemption
	This exemption in IFRS 1 allows a first-time adopter to apply the transitional provisions set out in IAS 23 Borrowing Costs at January 1, 2009 or the date of transition to IFRS, whichever is later. IAS 23 requires the capitalization of borrowing costs related to all qualifying assets. The Company elected to apply IAS 23 Borrowing Costs to qualifying assets for which the commencement date for capitalization is on or after January 1, 2010.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

3.	Summary of Significant Accounting Policies

a.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with IFRS for interim financial information as are the comparative figures presented. As these are the Company’s first set of condensed consolidated interim financial statements in accordance with IFRS, the Company’s disclosures are in accordance with IAS 34 Interim Financial Reporting. Operating results for the three-month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report for the year ended December 31, 2010, which were prepared in accordance with Canadian GAAP. Note 2 above provides an explanation of the transition to IFRS.

Accounting standards issued and effective January 1, 2013

The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective. These include:

The Company will be required to adopt IFRS 9 Financial Instruments, which replaces the current standard, IAS 39 Financial Instruments: Recognition and Measurement. The new standard replaces the current classification and measurement criteria for financial assets and liabilities with only two classification categories: amortized cost and fair value.

IFRS 10 Consolidated Financial Statements establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This standard (i) requires a parent entity (an entity that controls one or more other entities) to present consolidated financial statements; (ii) defines the principle of control, and establishes control as the basis for consolidation; (iii) sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee; and (iv) sets out the accounting requirements for the preparation of consolidated financial statements. IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation—Special Purpose Entities and is effective for annual periods beginning on or after January 1, 2013, with early application permitted.

IFRS 11 Joint Arrangements establishes the core principle that a party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and accounts for those rights and obligations in accordance with that type of joint arrangement. This standard is effective for annual periods beginning on or after January 1, 2013, with early application permitted.

IFRS 12 Disclosure of Involvement with Other Entities requires the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. This standard is effective for annual periods beginning on or after January 1, 2013, with early application permitted.

IFRS 13 Fair Value Measurement defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies when another IFRS requires or permits fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except for: share-based payment transactions within the scope of IFRS 2 Share-based Payment; leasing transactions within the scope of IAS 17 Leases; measurements that have some similarities to fair value but that are not fair value, such as net realizable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets. This standard is effective for annual periods beginning on or after January 1, 2013, with early application permitted.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

IAS 27 Separate Financial Statements has the objective of setting standards to be applied in accounting for investments in subsidiaries, jointly ventures, and associates when an entity elects, or is required by local regulations, to present separate (non-consolidated) financial statements. This standard is effective for annual periods beginning on or after January 1, 2013, with early application permitted. This standard will not have an impact on the consolidated financial statements.

IAS 28 Investments in Associates and Joint Ventures prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. IAS 28 applies to all entities that are investors with joint control of, or significant influence over, an investee (associate or joint venture). This standard is effective for annual periods beginning on or after January 1, 2013, with early application permitted.

The Company has not early adopted any of these standards and is currently evaluating the impact, if any, that these standards might have on its consolidated financial statements.

b.	Significant Accounting Policies

Basis of Preparation: The condensed consolidated financial statements of Pan American Silver Corp and its subsidiaries (the “Company”) are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and interpretations of the IFRS Interpretations Committee (IFRIC) effective for the Company’s reporting for the year ended December 31, 2011.

The condensed consolidated financial statements are presented in US dollars, which is the Company’s functional and presentation currency, and all values are rounded to the nearest thousand except where otherwise indicated.

Principles of Consolidation: The financial statements consolidate the financial statements of Pan American Silver Corp and its subsidiaries. All inter-entity balances and transactions, including unrealized profits and losses arising from intra-company transactions, have been eliminated in full. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passes. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. This occurs when the Company has more than 50% voting power through ownership or agreements, except where minority rights are such that a minority shareholder is able to prevent the Company from exercising control. Where there is a loss of control of a subsidiary, the financial statements include the results for the part of the reporting period during which the Company has control. Subsidiaries use the same reporting period and same accounting policies as the Company.

For partly owned subsidiaries, the net assets and net earnings attributable to non-controlling shareholders are presented as “Amounts attributable to non-controlling interest” in the consolidated statement of financial position and consolidated income statement.

The condensed consolidated financial statements include the wholly-owned and partially-owned subsidiaries of the Company, the most significant of which are presented in the following table:

Subsidiary	Location	Ownership Interest	Status	Operations and Development Projects Owned

Pan American Silver S.A. Mina Quiruvilca	Peru	100%	Consolidated	Huaron Mine/Quiruvilca Mine
Compañía Minera Argentum S.A.	Peru	92%	Consolidated	Morococha Mine
Minera Corner Bay S.A.	Mexico	100%	Consolidated	Alamo Dorado Mine
Plata Panamericana S.A. de C.V.	Mexico	100%	Consolidated	La Colorada Mine
Compañía Minera Triton S.A.	Argentina	100%	Consolidated	Manantial Espejo Mine
Pan American Silver (Bolivia) S.A.	Bolivia	95%	Consolidated	San Vicente Mine
Minera Argenta S.A.	Argentina	100%	Consolidated	Navidad Project

Inter-company balances and transactions have been eliminated on consolidation.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

Business combinations: Upon the acquisition of a subsidiary, the acquisition method of accounting is used, whereby the purchase consideration is allocated to the identifiable assets, liabilities and contingent liabilities (identifiable net assets) acquired on the basis of fair value at the date of acquisition. When the cost of acquisition exceeds the fair values attributable to the Group’s share of the identifiable net assets, the difference is treated as purchased goodwill, which is not amortised but is reviewed for impairment annually or more frequently where there is an indication of impairment. If the fair value attributable to the Company’s share of the identifiable net assets exceeds the cost of acquisition, the difference is immediately recognized in the income statement. Acquisition costs are expensed.

Control of a business may be achieved in stages. Upon the acquisition of control, any previously held interest is remeasured to fair value at the date control is obtained resulting in a gain or loss upon the acquisition of control. In addition, any change re relating to interest previously recognized in other comprehensive income is reclassified to the income statement upon the acquisition of control.

Significant Judgments and Estimates: Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management’s knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements.

The preparation of the financial statements requires that the Company’s management use judgement to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant items that require both judgements and estimates are: quantities of proven and probable reserves; the value of mineralized material beyond proven and probable reserves; future costs and expenses to produce proven and probable reserves; future commodity prices and foreign currency exchange rates; the future cost of provision for decommissioning and closure costs; amounts of contingencies; the fair value of acquired assets and liabilities including pre-acquisition contingencies; valuation input assumptions for derivative liabilities; and taxes. Significant items that require estimates as the basis for determining the stated amounts include inventories, trade accounts receivable, mineral property plant and equipment, investments in non-producing properties, revenue recognition, stock based compensation, unrealized gains and losses on commodity and foreign currency contracts, derivative liabilities; fair value of assets and liabilities acquired in a business combination, and taxes.

Revenue Recognition: Revenue associated with the sale of commodities is recognized when all significant risks and rewards of ownership of the asset sold are transferred to the customer, usually when insurance risk and title has passed to the customer and the commodity has been delivered to the shipping agent. At this point the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the commodities and the costs incurred, or to be incurred, in respect of the sale can be reliably measured. Revenue is recognized, at the fair value of the consideration receivable, to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured. Sales revenue is recognized at the fair value of consideration received, which in most cases is invoiced amounts.

The Company’s concentrate sales contracts with third-party smelters, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. Final settlement is based on applicable commodity prices set on specified quotational periods, typically ranging from one month prior to shipment, and can extend to three months after the shipment arrives at the smelter and is based on average market metal prices. For this purpose, the selling price can be measured reliably for those products, such as silver, gold, zinc, lead and copper, for which there exists an active and freely traded commodity market such as the London Metals Exchange and the value of product sold by the Company is directly linked to the form in which it is traded on that market.

Sales revenue is commonly subject to adjustment based on an inspection of the product by the customer. In such cases, sales revenue is initially recognized on a provisional basis using the Company’s best estimate of contained metal, and adjusted subsequently. Revenues are recorded under these contracts at the time title passes to the buyer based on the expected settlement period. Revenue on provisionally

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

priced sales is recognized based on estimates of the fair value of the consideration receivable based on forward market prices. At each reporting date provisionally priced metal is marked to market based on the forward selling price for the quotational period stipulated in the contract. Variations between the price recorded at the shipment date and the actual final price set under the smelting contracts are caused by changes in metal prices and result in an embedded derivative in the accounts receivable. The embedded derivative is recorded at fair value each period until final settlement occurs, with the fair value adjustments recognized in revenue.

Refining and treatment charges are netted against revenue for sales of metal concentrate. Sales of concentrate are stated at their invoiced amount which is net of treatment and refining charges.

Financial instruments: are any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

(i) Financial assets

The Company classifies its financial assets in the following categories: at fair value through the income statement, loans and receivables, available-for-sale and held to maturity investments. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of financial assets at initial recognition.

(a) Financial assets at fair value through the income statement

Derivatives are included in this category and are classified as current assets. Assets in this category are classified as current assets. Generally, the Company does not acquire financial assets for the purpose of selling in the short term. Financial assets carried at fair value through the income statement are initially recognized at fair value and transaction costs are expensed in the income statement.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets or non-current assets based on their maturity date. Loans and receivables comprise ‘trade and other receivables’, ‘other financial assets’ and ‘cash and cash equivalents’ in the statement of financial position. Loans and receivables are carried at amortized cost less any impairment.

Available-for-sale financial assets are non-derivatives that are either specifically designated as available for sale or not classified in any of the other categories. They are included in non-current assets unless the Company intends to dispose of the investment within 12 months of the statement of financial position date. Changes in the fair value of available-for sale financial assets denominated in a currency other than the functional currency of the holder, other than equity investments, are analyzed between translation differences and other changes in the carrying amount of the security. The translation differences are recognized in the income statement. Any impairment charges are also recognized in the income statement, while other changes in fair value are recognized in equity directly. When financial assets classified as available-for-sale are sold, the accumulated fair value adjustments previously recognized in equity are reclassified to the income statement.

Dividends on available-for-sale equity instruments are also recognized in the income statement within investment income when the Company’s right to receive payments is established. Financial assets not carried at fair value through the income statement are initially recognized on the trade date at fair value plus transaction costs.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

(d) Held to maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Company has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long-term investments that are intended to be held-to-maturity, such as bonds, are measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initially recognized amount and the maturity amount. This calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortized cost, gains and losses are recognized in income when the investments are derecognized or impaired, as well as through the amortization process.

Financial assets are derecognized when the investments mature or are sold, and substantially all the risks and rewards of ownership have been transferred.

(ii) Financial liabilities

Borrowings and other financial liabilities are recognized initially at fair value, net of transaction costs incurred and are subsequently stated at amortized cost. Any difference between the amounts originally received (net of transaction costs) and the redemption value is recognized in the income statement over the period to maturity using the effective interest method.

Borrowings and other financial liabilities are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date.

(iii) Derivative financial instruments

When the Company enters into derivative contracts these transactions are designed to reduce exposures related to assets and liabilities, firm commitments or anticipated transactions. All derivatives are initially recognized at their fair value on the date the derivative contract is entered into and are subsequently re-measured subject to IAS 39 at their fair value at each statement of financial position date.

– Embedded derivatives: Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to their host contracts. For example, variations between the commodity price recorded at the shipment date and the actual final price set under the smelting contracts are caused by changes in metal prices and result in an embedded derivative in the accounts receivable. This is described in the policy for revenue recognition.

(iv) Fair value

Fair value is the amount at which an item could be exchanged in an arm’s length transaction between informed and willing parties. Where relevant market prices are available, these are used to determine fair values. In other cases, fair values are calculated using quotations from independent financial institutions, or by using valuation techniques consistent with general market practice applicable to the instrument.

·	The fair values of cash, short term borrowings approximate their carrying values, as a result of their short maturity or because they carry floating rates of interest.

·	Derivative financial assets and liabilities are measured at fair value based on published price quotations for the period for which a liquid active market exists.

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

(v) Impairment of financial assets

Available-for-sale financial assets

The Company assesses at each statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, an evaluation is made as to whether a decline in fair value is ‘significant’ or ‘prolonged’ based on an analysis of indicators such as significant adverse changes in the technological, market, economic or legal environment in which the company invested in operates.

If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in the income statement is transferred from equity to the income statement. Reversals in respect of equity instruments classified as available for- sale are not recognized in the income statement. Reversals of impairment losses on debt instruments are reversed through the income statement; if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized.

(vi) De-recognition of financial assets and liabilities

Financial assets

A financial asset is derecognized when its contractual rights to the cash flows that comprise the financial asset expire or substantially all the risks and rewards of the asset are transferred.

Financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. Gains and losses on derecognition are recognized within finance income and finance costs respectively.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and any difference in the respective carrying amounts is recognized in the income statement.

(vii) Trade receivables

Trade receivables are recognized initially at fair value and are subsequently measured at amortized cost reduced by any provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due. Indicators of impairment would include financial difficulties of the debtor, likelihood of the debtor’s insolvency, default in payment or a significant deterioration in credit worthiness. Any impairment is recognized in the income statement within ‘doubtful accounts provision’. When a trade receivable is uncollectable, it is written off against the provision for impairment. Subsequent recoveries of amounts previously written off are credited against ‘doubtful accounts provision’ in the income statement.

(viii) Accounts payable

Accounts payable are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

Derivative Financial Instruments: The Company employs metals and currency contracts, including forward contracts to manage exposure to fluctuations in metal prices and foreign currency exchange rates. For metals production, these contracts are intended to reduce the risk of falling prices on the Company’s future sales. Foreign currency derivative financial instruments, such as forward contracts are used to

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

manage the effects of exchange rate changes on foreign currency cost exposures. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative and any gains or losses arising from changes in fair value on derivatives are taken directly to earnings for the year. The fair value of forward currency and commodity contracts is calculated by reference to current forward exchange rates and prices for contracts with similar maturity profiles.

Cash: Cash includes cash on hand and cash in banks, held primarily in U.S. and Canadian dollars (“USD” and “CAD”, respectively) and considered “held for trading” and therefore is stated at its carrying value which approximates its fair value.

Short-term Investments: Short-term investments are classified as “available for sale”, and consist of highly-liquid debt securities with original maturities in excess of three months and equity securities. These debt and equity securities are initially recorded at fair value, which upon their initial measurement is equal to their cost. Subsequent measurements and changes in the market value of these debt and equity securities are recorded as changes to other comprehensive income. Investments are assessed quarterly for potential impairment.

Inventories: Inventories include work in progress, concentrate ore, doré, processed silver and gold, and operating materials and supplies. Work in progress inventory includes ore stockpiles and other partly processed material. Stockpiles represent ore that has been extracted and is available for further processing. The classification of inventory is determined by the stage at which the ore is in the production process. Inventories of ore are sampled for metal content and are valued based on the lower of cost or estimated net realizable value based upon the period ending prices of contained metal. Cost is determined on a weighted average basis or using a first-in-first-out basis and includes all costs incurred in the normal course of business including direct material and direct labour costs and an allocation of production overheads, depreciation and amortization, and other costs, based on normal production capacity, incurred in bringing each product to its present location and condition. Material that does not contain a minimum quantity of metal to cover estimated processing expense to recover the contained metal is not classified as inventory and is assigned no value. If the ore will not be processed within the 12 months after the statement of financial position date it is included within non-current assets. Quantities are assessed primarily through surveys and assays.

Supplies inventories are valued at the lower of average cost and net realizable value, net of obsolescence. Concentrate and doré inventory includes product at the mine site, the port warehouse and product held by refineries. At times, the Company has a limited amount of finished silver at a minting operation where coins depicting Pan American’s emblem are stamped.

Mineral Property, Plant, and Equipment: On initial acquisition, mineral property, plant and equipment are valued at cost, being the purchase price and the directly attributable costs of acquisition or construction required to bring the asset to the location and condition necessary for the asset to be capable of operating in the manner intended by management. When provisions for closure and decommissioning are recognized, the corresponding cost is capitalized as an asset, representing part of the cost of acquiring the future economic benefits of the operation. The capitalized cost of closure and decommissioning activities is recognized in Property, plant and equipment and depreciated accordingly.

In subsequent periods, buildings, plant and equipment are stated at cost less accumulated depreciation and any impairment in value, whilst land is stated at cost less any impairment in value and is not depreciated.

Depreciation is provided so as to write off the cost, less estimated residual values of buildings, plant and equipment (based on prices prevailing at the statement of financial position date) on the following bases: Mine production assets are depreciated using a unit of production method based on estimated economically recoverable reserves, which results in a depreciation charge proportional to the depletion of reserves. Buildings, plant and equipment unrelated to production are depreciated using the straight-line

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

method based on estimated useful lives. Where parts of an asset have different useful lives, depreciation is calculated on each separate part.

Each asset or part’s estimated useful life has due regard to both its own physical life limitations and the present assessment of economically recoverable reserves of the mine property at which the item is located, and to possible future variations in those assessments. Estimates of remaining useful lives and residual values are reviewed annually. Changes in estimates are accounted for prospectively.

The expected useful lives are included below in the accounting policy for depreciation of property, plant, and equipment.

The net carrying amounts of land, buildings, plant and equipment are reviewed for impairment either individually or at the cash-generating unit level when events and changes in circumstances indicate that the carrying amounts may not be recoverable. To the extent that these values exceed their recoverable amounts, that excess is fully provided against in the financial year in which this is determined.

In countries where we have paid Value Added Tax (“VAT”) and where there is uncertainty of its recoverability, the VAT payments have either been deferred with mineral property costs relating to the property or expensed if it relates to mineral exploration. If we ultimately recover amounts that have been deferred, the amount received will be applied to reduce mineral property costs or taken as a credit against current expenses depending on the prior treatment.

Expenditure on major maintenance or repairs includes the cost of the replacement of parts of assets and overhaul costs. Where an asset or part of an asset is replaced and it is probable that future economic benefits associated with the item will be available to the Company, the expenditure is capitalized and the carrying amount of the item replaced derecognized. Similarly, overhaul costs associated with major maintenance are capitalized and depreciated over their useful lives where it is probable that future economic benefits will be available and any remaining carrying amounts of the cost of previous overhauls are derecognized. All other costs are expensed as incurred.

Where an item of property, plant and equipment is disposed of, it is derecognized and the difference between its carrying value and net sales proceeds is disclosed as earnings or loss on disposal in the income statement. Any items of property, plant or equipment that cease to have future economic benefits are derecognized with any gain or loss included in the financial year in which the item is derecognized.

Operational Mining Properties and Mine Development: When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves (which occurs upon completion of a positive economic analysis of the mineral deposit), the costs incurred to develop such property including costs to further delineate the ore body and remove overburden to initially expose the ore body prior to the start of mining operations, are also capitalized. Such costs are amortized using the units-of-production method over the estimated life of the ore body based on proven and probable reserves.

Costs associated with commissioning activities on constructed plants are deferred from the date of mechanical completion of the facilities until the date the Company is ready to commence commercial service. Any revenues earned during this period are recorded as a reduction in deferred commissioning costs. These costs are amortized using the units-of-production method (described below) over the life of the mine, commencing on the date of commercial service.

Acquisition costs related to the acquisition of land and mineral rights are capitalized as incurred. Prior to acquiring such land or mineral rights the Company makes a preliminary evaluation to determine that the property has significant potential to develop an economic ore body. The time between initial acquisition and full evaluation of a property’s potential is dependent on many factors including: location relative to existing infrastructure, the property’s stage of development, geological controls and metal prices. If a mineable ore body is discovered, such costs are amortized when production begins. If no mineable ore body is discovered, such costs are expensed in the period in which it is determined the property has no future economic value. In countries where the Company has paid Value Added Tax (“VAT”) and where there is uncertainty of its recoverability, the VAT payments have either been deferred with mineral

Amended and Restated - Please refer to Explanatory Note on Cover

Pan American Silver Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As at March 31, 2011, January 1, 2010 and December 31, 2010 and for the three month periods ended March 31, 2011 and 2010

(Tabular amounts are in thousands of U.S. dollars except number of options and per share amounts)

property costs relating to the property or expensed if it relates to mineral exploration. If the Company ultimately makes recoveries of the VAT, the amount received will be applied to reduce mineral property costs or taken as a credit against current expenses depending on the prior treatment.

Major development expenditures on producing properties incurred to increase production or extend the life of the mine are capitalized while ongoing mining expenditures on producing properties are charged against earnings as incurred. Gains or losses from sales or retirements of assets are included in gain or loss on sale of assets.