Financial & Operating Highlights
 
 Three Months ended Six Months ended
 June 30, June 30,
  2004 2003 2004 2003
 
 Consolidated Financial Highlights
 (in thousands of US dollars)
 
 Net income (loss)
 for the period $ 1,287 $ (1,156) $ 921 $ (2,747)
 Loss per share (0.12) (0.02) (0.17) (0.05)
 Cash flow from
 operations before
 working capital
 adjustments 2,375 243 5,298 42
 Capital spending 2,983  3,903 6,562 8,440
 Exploration expense 1,137 492 1,665 988
 Cash and short-term
 investments 118,736 11,151 118,736 11,151
 Working capital $ 124,947 $  5,875 $ 124,947 $ 5,875
 
 Consolidated Ore
 Milled & Metals
 Recovered to
 Concentrate
 
 Tonnes milled 315,425 294,826 613,292 589,039
 Silver metal - ounces 2,593,078 2,180,607 5,009,191  4,330,659
 Zinc metal - tonnes 7,589 7,838 14,828 17,181
 Lead metal - tonnes 4,201 4,692 8,095 10,504
 Copper metal - tonnes 673 1,017 1,291 1,784
 
 Net smelter return
 per tonne milled $ 58.30 $ 36.74 $ 60.41 $ 38.56
 Cost per tonne 45.19 37.95 43.59 38.18
 -------------------------------------------------------------------------
 Margin (loss)
 per tonne $ 13.11 $ (1.21) $ 16.82 $ 0.39
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Consolidated Cost per
 Ounce of Silver (net
 of by-product credits)
 
 Total cash cost
 per ounce $ 4.05 $ 4.40 $ 3.90 $ 4.25
 Total production
 cost per ounce $ 5.00 $ 4.87 $ 4.88 $ 4.75
 
 In thousands of
 US dollars
 Direct operating
 costs & value of
 metals lost in
 smelting and
 refining $ 15,728 $ 11,974 $ 30,760 $ 24,146
 By-product credits (6,006) (3,387) (12,189) (7,558)
 -------------------------------------------------------------------------
 Cash operating costs 9,722 8,587 18,571 16,587
 Depreciation,
 amortization &
 reclamation  2,282 923 4,655 1,973
 -------------------------------------------------------------------------
 Production costs $ 12,004 $ 9,510 $ 23,225 $ 18,561
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Ounces used in cost
 per ounce
 calculations 2,399,395 1,951,050 4,761,697 3,904,390
 
 Average Metal Prices
 Silver - London
 Fixing $ 6.25 $ 4.59 $ 6.47 $ 4.63
 Zinc - LME Cash
 Settlement per pound $ 0.47 $ 0.35 $ 0.48 $ 0.35
 Lead - LME Cash
 Settlement per pound $ 0.37 $ 0.21 $ 0.38 $ 0.21
 Copper - LME Cash
 Settlement per pound $ 1.26 $ 0.74 $ 1.25 $ 0.75
 
 
 
 Mine Operations Highlights
 
 Three Months ended Six Months ended
  June 30, June 30,
 2004 2003 2004 2003
 
 Huaron Mine
 Tonnes milled 166,675 154,900 314,480 312,940
 Average silver grade
  - grams per tonne 233 258 231 261
 Average zinc grade
 - percent 3.29% 3.68% 3.28% 3.87%
 Silver - ounces 1,100,510 1,151,012 2,064,595 2,350,713
  Zinc - tonnes 4,225 4,781 8,020 10,283
 Lead - tonnes 3,178 3,614 5,851 8,030
 Copper - tonnes 372 423 759 688
 
 Net smelter return
  per tonne $ 58.34 $ 42.90 $ 60.10 $ 44.26
 Cost per tonne 43.35 41.06 44.96 40.80
 -------------------------------------------------------------------------
 Margin (loss) per
 tonne $ 14.99 $ 1.84 $ 15.14 $ 3.46
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Total cash cost
 per ounce $ 3.77 $ 4.04 $ 3.96 $ 3.82
 Total production
 cost per ounce $ 5.07 $ 4.72 $ 5.27 $ 4.49
 
 In thousands of
 US dollars
 Direct operating
 costs & value of
 metals lost in
 smelting and
 refining $ 7,821 $ 6,776 $ 15,324 $ 13,542
 By-product credits (3,668) (2,126) (7,151) (4,558)
 -------------------------------------------------------------------------
 Cash operating costs 4,153 4,650 8,172 8,985
 Depreciation,
 amortization and
 reclamation 1,421 779 2,714 1,574
 -------------------------------------------------------------------------
 Production costs $ 5,575 $ 5,429 $ 10,887 $ 10,559
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Ounces for cost
 per ounce
 calculations 1,100,510 1,151,012 2,064,595 2,350,713
 
 Quiruvilca Mine
 Tonnes milled 93,745 123,924 185,965 245,269
 Average silver
 grade - grams
 per tonne 237 180 236 181
 Average zinc
 grade - percent 3.53% 2.82% 3.76% 3.17%
 Silver - ounces 621,311  614,274 1,238,201 1,234,028
 Zinc - tonnes 2,850 2,940 6,075 6,680
 Lead - tonnes 977 983 2,108 2,286
 Copper - tonnes 267 594 490  1,096
 
 Net smelter return
 per tonne $ 60.42 $ 29.69 $ 63.48 $ 32.10
 Cost per tonne 43.73 38.71 43.25 38.94
 -------------------------------------------------------------------------
 Margin (loss)
 per tonne $ 16.69 $ (9.02) $ 20.23 $ (6.84)
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Total cash cost
 per ounce $ 3.52 $ 5.80 $ 3.21 $ 5.63
 Total production
 cost per ounce $ 3.52 $ 5.83 $ 3.17 $ 5.78
 
 In thousands of
 US dollars
 Direct operating
 costs & value of
 metals lost in
 smelting and
 refining $ 4,403 $ 4,822 $ 8,704 $ 9,949
 By-product credits (2,216) (1,261) (4,728) (3,001)
 -------------------------------------------------------------------------
 Cash operating costs 2,188 3,561 3,977 6,948
 Capital spending
 expensed and
 carrying value
 adjustment - 20 (48) 184
 -------------------------------------------------------------------------
 Production costs $ 2,188 $ 3,582 $ 3,929 $ 7,133
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Ounces for cost
 per ounce
 calculations 621,311 614,274 1,238,201 1,234,028
 
 
 
 
  Three Months ended Six Months ended
 June 30, June 30,
 2004 2003 2004 2003
 
 La Colorada Mine
 Tonnes milled  38,347 16,002 91,389 30,830
 Average silver grade
 - grams per tonne 480 489 437 500
 Silver - ounces 415,828 229,557 910,590 426,269
 Zinc - tonnes  34 117 122 218
 Lead - tonnes 46 95 136 188
 
 Net smelter return
 per tonne $ 62.27 $ - $ 62.77 $ -
 Cost per tonne  82.44 - 60.73 -
 -------------------------------------------------------------------------
 Margin (loss)
 per tonne $ (20.17) $ - $ 2.04 $ -
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Total cash cost
 per ounce $ 6.42 $ - $ 5.36 $ -
 Total production
 cost per ounce $ 8.08 $ - $ 7.17 $ -
 
 In thousands of
 US dollars
 Direct operating
 costs & value of
 metals lost in
 smelting and
 refining $ 2,792 $ - $ 5,194 $ -
 By-product credits (123) - (311) -
 -------------------------------------------------------------------------
 Cash operating costs 2,669 - 4,883 -
 Depreciation,
 amortization and
 reclamation 692 - 1,644 -
 -------------------------------------------------------------------------
 Production costs $ 3,361 $ - $ 6,528 $  -
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Ounces for cost
 per ounce
 calculations 415,828 - 910,590 -
 
 Pyrite Stockpile
 Sales
 Tonnes sold 21,991 15,388 44,836 26,844
 Average silver
 grade - grams
 per tonne 370 375 380 370
 Silver ounces 261,746 185,764 548,311 319,649
 
 Net smelter return
 per tonne $ 42.04 $ 31.51 $ 44.99 $ 31.22
 Cost per tonne 0.42 0.55 0.47 0.63
 -------------------------------------------------------------------------
 Margin (loss)
 per tonne $ 41.62 $ 30.96 $ 44.52 $ 30.59
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Total cash cost
 per ounce $ 2.72 $ 2.02 $ 2.81 $ 2.05
 Total production
 cost per ounce $ 3.36 $ 2.69 $ 3.43 $  2.72
 
 In thousands of
 US dollars
 Value of metals
 lost in smelting
 and refining $ 712 $ 375 $ 1,538 $ 654
 By-product credits - - - -
 -------------------------------------------------------------------------
 Cash operating costs 712 375 1,538 654
 Depreciation,
 amortization
 and reclamation 169 123 344 215
  -------------------------------------------------------------------------
 Production costs $ 881 $ 499 $ 1,882 $ 869
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Ounces for cost
 per ounce
 calculations 261,746 185,764 548,311 319,649
 
 
 
 
 Three Months ended Six Months ended
  June 30, June 30,
 2004 2003 2004 2003
 
 San Vicente Mine(x)
 Tonnes milled 16,658 - 21,458 -
 Average silver grade
 - grams per tonne 424 - 422 -
 Average zinc grade
 - percent 3.63% - 3.65% -
 Silver - ounces 193,683 - 247,494  -
 Zinc - tonnes 480 - 611 -
 Copper - tonnes 34 - 42 -
 
 
 
 PAN AMERICAN SILVER CORP.
 Consolidated Balance Sheets
 (in thousands of US dollars)
 June 30 December 31
 2004 2003
 -------------------------------------------------------------------------
 (Unaudited)
 ASSETS
 Current
 Cash and cash equivalents $ 53,979 $ 14,191
 Short-term investments  64,757 74,938
 Accounts receivable, net of $nil
 provision for doubtful accounts 10,322 7,545
 Inventories 5,777 6,612
 Prepaid expenses 2,319 1,289
 -------------------------------------------------------------------------
 Total Current Assets 137,154 104,575
 Mineral property, plant and equipment - note 3 85,766 83,574
 Investment and non-producing properties - note 4 84,434 83,873
 Direct smelting ore 3,436 3,901
 Other assets 4,826  3,960
 -------------------------------------------------------------------------
 Total Assets $ 315,616 $ 279,883
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 LIABILITIES
 Current
 Accounts payable and accrued liabilities $ 9,135 $ 10,525
 Advances for metal shipments 2,632 4,536
 Current portion of bank loans and
 capital lease - note 6 14 2,639
 Current portion of other
 non-current liabilities 426 4,948
 -------------------------------------------------------------------------
 Total Current Liabilities 12,207 22,648
 Deferred revenue 780 865
 Bank loans and capital lease - note 6 332 10,803
 Liability component of convertible
 debentures - note 5 187 19,116
 Provision for asset retirement obligation
 and reclamation 21,202 21,192
  Provision for future income tax 19,035 19,035
 Severance indemnities and commitments 3,158 2,126
 -------------------------------------------------------------------------
 Total Liabilities  56,901 95,785
 -------------------------------------------------------------------------
 
 SHAREHOLDERS' EQUITY
 Share capital
 Authorized: 100,000,000 common shares
 with no par value
 Issued:
 December 31, 2003 - 53,009,851 common shares
 June 30, 2004 - 66,638,380 common shares 377,091 225,154
 Equity component of convertible
 debentures - note 5 690 66,735
 Additional paid in capital 11,858 12,752
 Deficit (130,924) (120,543)
 -------------------------------------------------------------------------
 Total Shareholders' Equity  258,715 184,098
 -------------------------------------------------------------------------
 Total Liabilities and Shareholders' Equity $ 315,616 $ 279,883
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 See accompanying notes to consolidated financial statements
 
 
 
 PAN AMERICAN SILVER CORP.
 Consolidated Statements of Operations
 (Unaudited - in thousands of US dollars)
 
 Three Months ended Six Months ended
 June 30, June 30,
  2004 2003 2004 2003
 -------------------------------------------------------------------------
 (Note 2) (Note 2)
 Revenue $ 20,950 $ 12,553 $ 36,101 $ 20,375
 Expenses
 Operating 16,531 11,333 27,699 18,762
 General and
 administration 1,202 582 2,005 983
 Depreciation and
 amortization 2,008 462 4,153 933
 Stock-based
 compensation 684 714 1,124 1,201
 Reclamation 301 77 603 156
 Exploration and
 development 1,137 492 1,665 988
 Interest 289 178 757 337
 -------------------------------------------------------------------------
  22,152 13,838 38,006 23,360
 -------------------------------------------------------------------------
 
 Loss from operations (1,202) (1,285) (1,905) (2,985)
 Gain on sale of
 concessions (note 3) 3,583 - 3,583 -
 Debt settlement
 expenses (1,311) - (1,311) -
 Other income 217 129 554 238
 -------------------------------------------------------------------------
 Net income (loss)
 for the period $ 1,287 $ (1,156) $ 921 $ (2,747)
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Loss per share
 - note 8 $ (0.12) $ (0.02) $ (0.17) $ (0.05)
 
 Weighted average
 number of shares
 outstanding 65,073,833 51,947,530  59,564,028 50,849,874
 
 See accompanying notes to consolidated financial statements
 
 
 PAN AMERICAN SILVER CORP.
 Consolidated Statements of Cash Flows
 (Unaudited - in thousands of US dollars)
 
 
 Three Months ended Six Months ended
 June 30, June 30,
 2004 2003 2004 2003
 -------------------------------------------------------------------------
 Operating activities
 Net income (loss)
 for the period $ 1,287 $ (1,156) $ 921 $ (2,747)
 Reclamation
 expenditures  (230) - (592) -
 Gain on sale
 of concessions (3,583) - (3,583) -
 Items not involving
 cash
 Depreciation and
 amortization 2,008 462  4,153 933
 Interest accretion
 on convertible
 debentures 97 - 366 -
 Stock-based
 compensation 684 714 1,124 1,201
 Debt settlement
 expenses 1,208 - 1,208 -
 Compensation
 expense 245 - 245 -
 Asset retirement
 and reclamation
 accretion  301 77 603 156
 Operating cost
 provisions 358 146 853 499
 Changes in non-cash
 working capital
 items (1,880) (3,389) (5,196) (2,840)
 -------------------------------------------------------------------------
 495 (3,146) 102 (2,798)
 -------------------------------------------------------------------------
 
  Financing activities
 Shares issued for
 cash 943 1,975 61,005 2,698
 Shares issue costs (96) (7) (180) (7)
 Convertible
 debentures
 payments  (11,213) - (13,520) -
 Capital lease
 repayment (75) (75) (75) (75)
 Proceeds from
 bank loans - 4,000 - 8,000
  Repayment of
 bank loans (12,614) (406) (13,021) (938)
 -------------------------------------------------------------------------
 (23,055) 5,487 34,209 9,678
 -------------------------------------------------------------------------
 
 Investing activities
 Mineral property,
 plant and equipment
 expenditures (2,665) (3,648) (6,008) (8,063)
 Investment and
 non-producing
 property
 expenditures (318) (255) (554) (377)
 Acquisition of
 cash of subsidiary - - - 2,393
 Proceeds from sale
 of concessions  3,583 - 3,583 -
 Proceeds from sale
 of marketable
 securities 10,434 - 10,456 -
 Other (2,000) 139 (2,000) 120
 -------------------------------------------------------------------------
 9,034 (3,764) 5,477 (5,927)
 -------------------------------------------------------------------------
 
 Increase (decrease)
  in cash and cash
 equivalents during
 the period (13,526) (1,423) 39,788 953
 Cash and cash
 equivalents,
 beginning of
 period 67,505 12,561 14,191 10,185
  -------------------------------------------------------------------------
 Cash and cash
 equivalents, end
 of period $ 53,979 $ 11,138 $ 53,979 $ 11,138
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Supplemental
 disclosure of
 non-cash financing
 and investing
 activities
 Shares issued for
 compensation $ 245 $ - $ 245 $ -
 
 Shares issued for
 acquisition of
 subsidiary - - - 64,228
 Shares issued for
 conversion of
 convertible
 debentures 88,848 - 88,848 -
 
 See accompanying notes to consolidated financial statements
 
 
 
 
 PAN AMERICAN SILVER CORP.
 Consolidated Statements of Shareholders' Equity
 For the six months ended June 30, 2004
 (Unaudited - in thousands of US dollars, except for shares)
 
 
 Common shares Additional
 ---------------- Convertible Paid In
 Shares Amount Debentures Capital Deficit Total
 -------------------------------------------------------------------------
 Balance,
 December
 31, 2002 43,883,454 $161,108  $ - $ 1,327 $(106,943) $ 55,492
 Stock
 -based
 compen-
 sation - - - 2,871 - 2,871
 Exercise
 of stock
 options 1,385,502 9,312 - (1,471) -  7,841
 Exercise
 of share
 purchase
 warrants 100,943 509 - - - 509
 Issued on
 acquisition
 of Corner
 Bay Silver
 Inc. 7,636,659 54,203 -  - - 54,203
 Fair value
 of stock
 options
 granted - - - 1,136 - 1,136
 Fair value
 of share
 purchase
 warrants - - - 8,889  - 8,889
 Issue of
 conver-
 tible
 debentures - - 63,201 - - 63,201
 Accretion
 of conver-
 tible
 debentures - - 3,534 - (3,534)  -
 Convertible
 debenture
 issue
 costs - - - - (3,272) (3,272)
 Issued as
 compen-
 sation 3,293 22 - - - 22
 Net loss
 for the
 year - - - - (6,794) (6,794)
 -------------------------------------------------------------------------
 Balance,
 December
 31, 2003 53,009,851 225,154 66,735 12,752  (120,543) 184,098
 Stock
 -based
 compen-
 sation - - - 1,124 - 1,124
 Exercise
 of stock
 options 603,695 6,106 - (2,018) - 4,088
 Exercise
 of share
 purchase
 warrants 539,834 1,918 - - - 1,918
 Shares
 issued
 for cash 3,333,333 55,000 - - - 55,000
 Shares
 issue
 costs - (180) - - - (180)
 Shares
 issued
 on
 conver-
 sion of
 conver-
 tible
 debentures
 (note 5) 9,135,043 88,848 (68,883) - (8,464) 11,501
 Issued
 as compen-
 sation 16,624 245 - - - 245
 Accretion
 of conver-
 tible
 debentures - - 2,838 - (2,838) -
 Net income
  for the
 period - - - - 921 921
 -------------------------------------------------------------------------
 Balance,
 June 30,
 2004 66,638,380 $377,091 $690 $11,858 $(130,924) $258,715
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 See accompanying notes to consolidated financial statements
 
 
 
  Pan American Silver Corp.
 Notes to Unaudited Interim Consolidated Financial Statements
 As at June 30, 2004 and 2003 and for the three months and six months then
 ended
 (Tabular amounts are in thousands of US dollars, except for shares)
 -------------------------------------------------------------------------
 
 1. Basis of presentation
 
 These unaudited interim consolidated financial statements are
 expressed in United States dollars and are prepared in accordance
  with accounting principles generally accepted in Canada
 ("Canadian GAAP"), which are more fully described in the annual
 audited consolidated financial statements for the year ended
 December 31, 2003 which is included in the Company's 2003 Annual
 Report. These statements do not include all of the disclosures
 required by Canadian GAAP for annual financial statements. Certain
 comparative figures have been reclassified to conform to the current
 presentation. Significant differences from United States generally
 accepted accounting principles are described in note 10.
 
 In management's opinion, all adjustments necessary for fair
 presentation have been included in these financial statements.
 
 
 2. Change in accounting policies
 
 a) During the fourth quarter 2003 the Company changed its accounting
 policy, retroactive to January 1, 2002, in accordance with
  recommendation of CICA 3870, "Stock-based Compensation and Other
 Stock-based Payments". As permitted by CICA 3870, the Company has
 applied this change retroactively for new awards granted on or
 after January 1, 2002. Stock-based compensation awards are
 calculated using the Black-Scholes option pricing model.
 Previously, the Company used the intrinsic value method for
 valuing stock-based compensation awards granted to employees
  and directors where compensation expense was recognized for the
 excess, if any, of the quoted market price of the Company's
 common shares over the common share exercise price on the day
 that options were granted.
 
  Using the fair value method for stock-based compensation,
 the Company recorded an additional charge to earnings of
 $1,124,000 for the six months ended June 30, 2004 (six months
 ended June 30, 2003 - $1,201,000) for stock options granted to
 employees and directors. The fair value of the stock options
 granted during the six months ended June 30, 2004 was determined
 using an option pricing model assuming no dividends were paid,
 a weighted average volatility of the Company's share price of
 58 per cent, weighted average expected life of 3.5 years and
 weighted average annual risk free rate of 4.03 per cent.
 
 b) During the fourth quarter of 2003, the Company changed its
 accounting policy on a retroactive basis with respect to
 accounting and reporting for obligations associated with the
 retirement of long-lived assets that result from the acquisition,
  construction, development and the normal operation of long-lived
 assets. The Company adopted CICA 3110 "Asset Retirement
 Obligations" whereby the fair value of the liability is initially
 recorded and the carrying value of the related asset is increased
 by the corresponding amount. The liability is accreted to its
 present value and the capitalized cost is amortized over the
 useful life of the related asset. The change in accounting policy
 did not have a significant impact on reported results of
 operations in any period presented.
 
 
 3. Mineral property, plant and equipment
 
 Mineral property, plant and equipment consist of:
 
 
  June 30, 2004 December 31, 2003
 -------------------------------------------------------------------------
 Accumulated Accumulated
 Cost Amortization Net Cost Amortization Net
 -------------------------------------------------------------------------
 Mineral
 properties
 La Colorada
 mine,
 Mexico $ 4,153 $ - $ 4,153 $ 4,153 $ - $ 4,153
 Huaron mine,
  Peru 1 - 1 1 - 1
 -------------------------------------------------------------------------
 4,154 - 4,154 4,154 - 4,154
 -------------------------------------------------------------------------
 
 Plant and
 equipment
 La Colorada
 mine,
 Mexico 12,446 (756) 11,690 10,332 (360) 9,972
 Huaron mine,
 Peru 14,417 (4,083) 10,334 14,417 (3,426) 10,991
 Quiruvilca
 mine, Peru 15,410 (15,410) - 15,410 (15,410) -
 Other 3,229 (540) 2,689 3,161 (503) 2,658
 -------------------------------------------------------------------------
 45,502 (20,789) 24,713 43,320 (19,699) 23,621
 -------------------------------------------------------------------------
 
 Mine development
 and others
 La Colorada
 mine, Mexico 33,030 (2,337) 30,693 31,892 (1,113) 30,779
 Huaron mine,
 Peru 35,500 (9,294) 26,206 32,820 (7,800) 25,020
 Quiruvilca
 mine, Peru 10,046 (10,046) - 10,046 (10,046) -
 -------------------------------------------------------------------------
 78,576 (21,677) 56,899 74,758 (18,959) 55,799
 -------------------------------------------------------------------------
 
 $128,232 $(42,466) $ 85,766 $122,232 $(38,658) $ 83,574
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 On June 28, 2004 the Company completed the sale of certain surface
 properties and mineral concessions to Barrick Gold Corporation for
 $3,583,000. Due to the write-off of the Quiruvilca mine in 2002
 these properties and concessions had a $nil carrying value and
 recognized a gain of $3,583,000.
 
 
 4. Investment and non-producing properties
 
 Acquisition costs of mineral development properties together with
 costs directly related to mine development expenditures are deferred.
 Exploration expenditures on investment properties are charged to
 operations in the period they are incurred.
 
 Investment and non-producing properties consists of:
 
 June December
 30 31
 2004 2003
 Investment properties
 Waterloo, USA $ 1,000 $ 1,000
 Tres Cruces, Hog Heaven and others 785 785
 -------------------------------------------------------------------------
 1,785 1,785
 -------------------------------------------------------------------------
 Non-producing properties
 Alamo Dorado, Mexico 80,637 80,076
 Manantial Espejo, Argentina 2,012 2,012
 -------------------------------------------------------------------------
 82,649 82,088
 -------------------------------------------------------------------------
  $ 84,434 $ 83,873
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 
 5. Convertible debentures
 
 In 2003 the Company completed an offering of $86,250,000 convertible,
 unsecured senior subordinated debentures (the "Debentures), which
 mature on July 31, 2009. The Debentures bear interest at a rate of
 5.25 per cent per annum, payable semi-annually on January 31 and
 July 31 of each year, beginning on January 31, 2004. The Company has
 the option to discharge interest payments from the proceeds on the
 sale of common shares of the Company issued to a trustee for the
 purposes of converting such shares into cash.
 
 In March 2004 the Company announced the terms of an offer (the
 "Offer"), which was open between April 7, 2004 and May 21, 2004,
 to induce the holders of the Debentures to convert their holdings
 into 106.929 common shares of the Company plus cash of $131.25
 for every $1,000 principal amount of the Debentures. Pursuant to
 this Offer the Company issued 9,135,043 common shares and made cash
 payments totaling $11,213,000 to the holders of $85,431,000 principal
 amount of the Debentures which accepted the Company's offer for
 conversion. Debt settlement expenses of $1,311,000 for interest,
 professional and other fees have been charged to earnings.
 
 
 6. Bank loans
 
 During the second quarter of 2004, the Company repaid both its Huaron
 pre-production and La Colorada project loan facilities by making
 payments totaling $12,614,000.
 
 The La Colorada project loan with the International Financial
 Corporation stipulates that the Company will be required to make an
 additional payment on the May 15th of each year until 2009 if the
 average price of silver for the preceding calendar year exceeded
 $4.75 per ounce. Such payment would be equal to 20 per cent of the
 positive difference between the average price of silver for the year
 and $4.75 multiplied by the number of ounces of silver produced
 divided by $9,500,000 and multiplied by the scheduled loan balance at
 the end of the year. As at June 30, 2004, the Company has accrued
 $358,000 with respect to this additional payment. This additional
 payment is treated as a royalty for accounting purposes and had been
 recorded as a reduction against our metal sales.
 
 
 7. Share capital
 
 During the six-month period ended June 30, 2004 the Company:
 
 i) issued 9,135,043 common shares at a value of $88,848,000 to the
 holders of $85,431,000 principal amount, senior subordinated
 convertible debentures to induced conversion of the convertible
 debentures;
 
 ii) issued 3,333,333 common shares at $16.50 per share, for net
 proceeds of $54,820,000, after legal, accounting and other fees;
 
 iii) issued 603,695 common shares for proceeds of $4,088,000 in
 connection with the exercise of employees and directors stock
 options;
 
 iv) issued 539,834 common shares for proceeds of $1,918,000 in
 connection with the exercise of share purchase warrants; and
 
 v) issued 16,624 common shares at a value of $245,000 for
  compensation expense.
 
 The following table summarizes information concerning stock options
 outstanding as at June 30, 2004:
 
 Options Outstanding Options Exercisable
  ----------------------------------------
 Weighted Number
 Number Average Exercis-
 Outstanding Remaining able  Weighted
 as at Contractual as at Average
 Range of Year of June 30, Life June 30, Exercise
 Exercise Prices Expiry 2004 (months) 2004 Price
 -------------------------------------------------------------------------
 
 $3.39 - $6.90 2004 5,036 1.70 5,036 $6.88
 $8.95 2005 44,077 8.10 44,077 $8.95
 $3.73 - $7.27 2006  134,666 22.52 98,000 $4.69
 $7.21 - $7.53 2007 404,000 40.95 370,000 $7.49
 $6.64 - $10.76 2008 574,231 48.49 69,231 $7.43
 $12.31 - $16.79 2009 382,000 56.38 142,000 $13.87
 $3.73 2010 222,000 77.60 222,000 $3.73
 -------------------------------------------------------------------------
 1,766,010 49.01 950,344 $8.37
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 During the six months ended June 30, 2004, the Company recognized
 $1,124,000 of stock compensation expense consisting of $563,000
 for options issued in 2004 and $561,000 for options issued in 2003.
 
 As at June 30, 2004 there were warrants outstanding to allow the
 holders to purchase 3,814,662 common shares of the Company at
 Cdn$12.00 per share. These warrants expire on February 20, 2008.
 
 
 8. Loss per share
 
 The following table presents the adjustments to net income (loss) to
 arrive at the net loss available to common shareholders in computing
 basic loss per share.
 
 Three months Six months
 ended ended
 June 30, June 30,
 ------------------- -------------------
 2004 2003 2004 2003
 -------------------------------------------------------------------------
 (Note 2) (Note 2)
 
 Net income (loss) for the period $ 1,287 $ (1,156) $ 921 $ (2,747)
 Adjustments:
 Charges relating to conversion
 of convertible debentures (8,464) - (8,464) -
 Accretion of convertible,
 unsecured senior subordinated
 debentures (718) - (2,838) -
 -------------------------------------------------------------------------
 Adjusted net loss for purpose
 of determining basic loss
 per share $ (7,895) $ (1,156) $(10,381) $ (2,747)
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 Loss per share $ (0.12) $ (0.02) $ (0.17) $ (0.05)
 
 For the six months ended June 30, 2004, potentially dilutive
 securities totaling 5,666,252 shares (2003 - 6,723,475) have
 been excluded from the calculation, as their effect would be
 anti-dilutive.
 
 
 9. Segmented information
 
 Substantially all of the Company's operations are within the mining
 sector, conducted through operations in six countries. Due to
 differences between mining and exploration activities, the Company
 has a separate budgeting process and measures the results of
 operations and exploration activities independently. The Corporate
 office provides support to the mining and exploration activities
 with respect to financial, human resources and technical support.
 
 Segmented disclosures and enterprise-wide information are as follows:
 
 
 For the three months ended June 30, 2004
 ---------------------------------------------
 Exploration
 Corporate &
  Mining Office Development Total
 -------------------------------------------------------------------------
 Revenue from external
 customers $ 20,950 $ - $ - $ 20,950
 Net income (loss)
 for the period 5,736 (3,505) (944) 1,287
 Segmented assets $114,688 $111,444 $ 89,484 $315,616
 
 
 
 For the three months ended June 30, 2003
  (Note 2)
 ---------------------------------------------
 Exploration
 Corporate  &
 Mining Office Development Total
 -------------------------------------------------------------------------
 Revenue from external
 customers $ 12,553 $ - $ - $ 12,553
 Net income (loss)
 for the period 367 (1,260) (263) (1,156)
 Segmented assets $ 93,409 $ 7,673 $ 86,290 $187,372
 
 
 
 For the six months ended June 30, 2004
 ---------------------------------------------
 Exploration
 Corporate &
  Mining Office Development Total
 -------------------------------------------------------------------------
 Revenue from external
 customers $ 36,101 $ - $ - $ 36,101
 Net income (loss)
 for the period 7,018 (4,649) (1,448) 921
 Segmented assets $114,688 $111,444 $ 89,484 $315,616
 
 
 
 For the six months ended June 30, 2003
  (Note 2)
 --------------------------------------------
 Exploration
 Corporate &
 Mining Office Development Total
 -------------------------------------------------------------------------
 Revenue from external
 customers $ 20,375 $ - $ -  $ 20,375
 Net loss for
 the period (14) (2,124) (609) (2,747)
 Segmented assets $ 93,409 $ 7,673 $ 86,290 $187,372
 
 
 
 10. Differences between Canadian and United States Generally Accepted
 Accounting Principles
 
 These financial statements are prepared in accordance with accounting
 principles generally accepted in Canada ("Canadian GAAP"). The
  differences between Canadian GAAP and accounting principles generally
 accepted in the United States ("US GAAP") as they relate to these
 financial statements are summarized below and discussed in Note 18
 in the Company's 2003 Annual Report.
 
 Consolidated Balance Sheets
 
 June 30, 2004
 ----------------------------------------
 Total Shareholders'
 Total Assets Liabilities Equity
 -------------------------------------------------------------------------
 Reported under Canadian GAAP $ 315,616 $ 56,901 $ 258,715
 Deferred exploration (a) (1,993) - (1,993)
 Amortization of mineral
 property (a) (2,550) (895) (1,655)
 SFAS 150 adjustments
 Reclassify convertible debentures -  630 (630)
 Deferred debt issue costs 3,272 - 3,272
 Interest accretion - (961) 961
 Interest expense - 3,662 (3,662)
  Amortization of debt issue costs (3,241) - (3,241)
 Inducement expense - 3,579 (3,579)
 Accretion of convertible
 debentures - (6,312) 6,312
 -------------------------------------------------------------------------
 Reported under US GAAP $ 311,104 $ 56,604 $ 254,500
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 
 December 31, 2003
 ----------------------------------------
  Total Shareholders'
 Total Assets Liabilities Equity
 -------------------------------------------------------------------------
 Reported under Canadian GAAP $ 279,883 $ 95,785 $ 184,098
 Deferred exploration (a) (1,993) - (1,993)
 Amortization of mineral
 property (a) (1,700) (595) (1,105)
 SFAS 150 adjustments (b)
 Reclassify convertible debentures - 63,201 (63,201)
 Deferred debt issue costs 3,273 - 3,273
 Interest accretion - (595) 595
 Interest expense - 1,887 (1,887)
 Amortization of debt issue costs (454) - (454)
 -------------------------------------------------------------------------
 Reported under US GAAP $ 279,009 $ 159,683 $ 119,326
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 
 
 Consolidated Statements of Shareholders' Equity
 
 June 30, 2004
 -------------------------------------------------------------------------
 Additional
 Common Convertible Paid in
 Shares Debentures Capital Deficit Total
 -------------------------------------------------------------------------
 Reported under
 Canadian GAAP $ 377,091 $ 690 $ 11,858 $(130,924) $ 258,715
 Deferred
 exploration (a) - -  - (1,993) (1,993)
 Amortization of
 mineral property (a) - - - (1,655) (1,655)
 SFAS 150
 adjustments (b)
 Reclassify
 convertible
 debentures - (630) -  - 630
 Accretion of
 convertible
 debentures - (60) - 6,372 6,312
 Deferred debt
 issue costs - - - 3,272 3,272
 Interest accretion - - - 961 961
 Interest expense - - - (3,662) (3,662)
 Amortization of
 debt issue costs - - - (3,241) (3,241)
 Inducement
 expense 127 - - (3,706) (3,579)
 -------------------------------------------------------------------------
 Reported under US
 GAAP $ 377,218 $ - $ 11,858 $(134,576) $ 254,500
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 
 December 31, 2003
 -------------------------------------------------------------------------
 Additional
 Common Convertible Paid in
 Shares Debentures Capital Deficit Total
 -------------------------------------------------------------------------
 Reported under
 Canadian GAAP $ 225,154 $ 66,735 $ 12,752 $(120,543) $ 184,098
 Deferred
 exploration (a) - - - (1,993) (1,993)
 Amortization of
 mineral property (a) - - - (1,105) (1,105)
 SFAS 150
 adjustments (b) - - - - -
 Reclassify
 convertible
 debentures - (63,201) -  - (63,201)
 Accretion of
 convertible
 debentures - (3,534) - 3,534 -
 Deferred debt
 issue costs - - - 3,272 3,272
 Interest accretion  - - - 595 595
 Interest expense - - - (1,887) (1,887)
 Amortization of
 debt issue costs - - - (453) (453)
 -------------------------------------------------------------------------
 $ 225,154 $ - $ 12,752 $(118,580) $ 119,326
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 
 
 Consolidated Statements of Operations
 
 Three months ended Six months ended
 June 30, June 30,
  2004 2003 2004 2003
 -------------------------------------------------------------------------
 (Note 2) (Note 2)
 
 Net income (loss)
 under Canadian GAAP $ 1,287 $ (1,156) $ 921 $ (2,747)
 Deferred exploration (a) - - - (113)
 Interest accretion 96 - 366 -
 Interest expense (643) -  (1,775) -
 Inducement expense (12,170) - (12,170) -
 Amortization of mineral
 property costs (275) - (550) -
 Amortization of debt
 issue costs  (2,515) - (2,788) -
 -------------------------------------------------------------------------
 Net loss under US GAAP $(14,220) $ (1,156) $(15,996) $ (2,860)
 -------------------------------------------------------------------------
 -------------------------------------------------------------------------
 Loss per share $(0.22) $ (0.02) $ (0.27) $ (0.06)
 
 
 a) Mineral Property Expenditures
 
 Canadian GAAP allows exploration costs and costs of acquiring mineral
 rights to be capitalized during the search for a commercially
 mineable body of ore. Prior to 2002 the Company had incurred
 exploration expenses that were added to the carrying value of mineral
 properties as it was anticipated that there was a continuing benefit
 of such expenditures. Subsequent to 2001 the Company has expensed all
 exploration costs unless such activities expand the reserve base at
 one of the Company's operations. Under US GAAP, exploration
 expenditures can only be deferred subsequent to the establishment of
 reserves. For US GAAP purposes, the Company therefore expensed its
  pre-2002 exploration expenditures.
 
 Furthermore, under US GAAP, the cost of acquisition of mineral
 property rights are generally classified as intangible assets and
 should be amortized over their useful life which, in the case of
  mineral rights, is the period to expiry of the rights. Under Canadian
 GAAP, costs of acquiring mineral rights may be considered as tangible
 property and would be amortized over the productive life of the
 asset. As a result, for US GAAP purposes, the Company is amortizing
 the cost of the mining rights acquired in the Corner Bay transaction
 on a straight line basis over the life of the mining rights, net of
 related income taxes.
 
 b) Convertible debentures
 
 In May 2003, FASB Statement No. 150 ("SFAS 150"), "Accounting for
 Certain Financial Instruments with Characteristics of Both
 Liabilities and Equity" was issued. This Statement requires that
 three types of financial instruments be reported as liabilities by
 their issuers. Those types of instruments include: mandatorily
 redeemable instruments; forward purchase contracts, written put
 options and other financial instruments not in the form of shares
 that either obligate the issuer to repurchase its equity shares and
 settle its obligation for cash or by transferring other assets; and
 certain financial instruments that include an obligation that may
 be settled in a variable number of equity shares, has a fixed or
 benchmark tied value at inception that varies inversely with the fair
 value of the equity shares. SFAS 150 is effective for instruments
 entered into or modified after May 31, 2003. Under Canadian GAAP the
 convertible debentures have been accounted for in accordance with
 CICA Handbook Section 3860. Application of this section results in
 the accounting as described in Note 11 in the Company's 2003 Annual
 Report, with the principle component of the debenture being treated
 as equity. In accordance with SFAS 150 the resulting change to the
 financial statements as at June 30, 2004 would be to increase
 liabilities by $598,000 (December 31, 2003 - $64,493,000) and
 decrease shareholders' equity by a corresponding amount. Debt
 issue expenses of $3,272,000 would be reclassified from shareholders'
 equity to assets and its proportionate share of the outstanding
 convertible debentures would be amortized over a three year period.
 Inducement and interest expense for the six months ended
 June 30, 2004 would be higher by $12,170,000 (2003 - $Nil) and
 $1,409,000 (2003 - $Nil), respectively.
 
 c) Recent accounting pronouncement
 
 In December 2003, the FASB issued Interpretation No. 46-Revised
 ("FIN 46-R"), Consolidation of Variable Interest Entities, an
 interpretation of ARB 51 (revised December 2003), which replaces
 FIN 46. FIN 46-R incorporates certain modifications of FIN 46 adopted
 by the FASB subsequent to the issuance of FIN 46, including
 modifications to the scope of FIN 46. For all non-special purpose
 entities ("SPE") created prior to February 1, 2003, public entities
 will be required to adopt FIN 46-R at the end of the first interim
 or annual reporting period ending after March 15, 2004. For all
 entities (regardless of whether the entity is an SPE) that were
 created subsequent to January 31, 2003, public entities are already
 required to apply the provisions of FIN 46, and should continue
 doing so unless they elect to adopt the provisions of FIN 46-R early
 as of the first interim or annual reporting period ending after
 December 15, 2003. If they do not elect to adopt FIN 46-R early,
 public entities would be required to apply FIN 46-R to those
 post-January 31, 2003 entities as of the end of the first interim
 or annual reporting period ending after March 15, 2004.
 
 
 11. Subsequent event
 
 As previously announced on February 9, 2004 the Company has
 launched its $36,700,000 cash offer, through the Peru Stock Exchange,
 to purchase the voting shares of Compania Minera Argentum S.A.
 ("Argentum"). Argentum's principal asset is the Morococha silver
 mine located in central Peru, 150 kilometres northeast of Lima.
 The Company has a lock-up agreement to acquire 92 per cent of
 Argentum's voting shares. The offer is expected to close in the
 third quarter 2004.
 
 In addition, the Company has acquired, for $1,500,000, 100 per cent
 of Compania Minera Natividad ("Natividad"), which holds numerous
 adjacent mineral concessions in proximity to the Morococha mine.
 
 
 Second Quarter 2004 Management's Discussion and Analysis
 
 Management's discussion and analysis ("MD&A") focuses on significant
factors that affected Pan American Silver Corp.'s and its subsidiaries' ("Pan
American" or the "Company") performance and such factors that may affect its
future performance. The MD&A should be read in conjunction with the unaudited
consolidated financial statements for the three months ended June 30, 2004 and
the related notes contained herein.
 The significant accounting policies are outlined within Note 2 to the
Consolidated Financial Statements of the Company for the year ended December
31, 2003. These accounting policies have been applied consistently for the six
months ended June 30, 2004.
 
 Significant Events and Transactions of the Second Quarter
 
 The Company made an offer to induce conversion by the holders of its
5.25 per cent convertible unsecured senior subordinated debentures (the
"Debentures") between April 7, 2004 and May 21, 2004. Approximately $85.4
million or 99 per cent of the Debenture holders elected to accept the
Company's offer and received $131.25 in cash plus 106.929 common shares of the
Company per $1,000 principal amount of the Debentures. The cash component of
the offer represented the interest that the Company would have paid on the
Debentures up until July 31, 2006, when the Company would, under certain
circumstances, have the right to force conversion. In addition, the offer
incorporated an additional 2.4358 shares per $1,000 principal amount of
Debentures converted, equal to a 4 per cent premium. The Company issued
9,135,043 common shares and paid cash of $11.21 million pursuant to this
offer.
 The Company prepaid the $9.5 million La Colorada construction loan on May
17, 2004 from the International Finance Corporation. Pan American also prepaid
the Huaron project loan by making a $3.1 million payment of principal and
accrued interest on April 16, 2004.
 The Company has initiated the final steps necessary to complete the
Morococha Mine acquisition, which was announced in February 2004. The purchase
is expected to close in August but the Company has already taken over
effective control of the mining operations and accounting functions. Assuming
the Morococha purchase closes in August as is expected currently, the mine
should contribute 1.4 million ounces of silver to Pan American's production in
2004 at a cash cost of $3.25 per ounce. Over the longer term Morococha will
add approximately 3.5 million ounces of annual silver production at a cash
cost of less than $3.00 per ounce.
 The La Colorada mine in Mexico reached commercial production on
January 1, 2004 after a $20 million expansion, which started in late 2002. As
such, all revenue and expense items were recognized in the statement of
operations in the first six months of 2004, which have previously been
capitalized during this expansion period. This change in accounting treatment
gives rise to several significant differences when comparing the consolidated
statement of operations for the second quarter of 2004 with the corresponding
period in 2003.
 On June 23, 2004 the Peruvian congress approved a royalty on mining
companies of between 1 and 3 per cent based on the value of annual concentrate
sales. The Company anticipates that its operations in Peru will be subject to
the royalty calculated at 1 per cent, which is expected to total between $0.5
million to $1.0 million per year for the Huaron, Quiruvilca and Morococha
mines combined. While there is still some uncertainty as to how this law will
be implemented, the Ministries of Energy & Mines and Economy & Finance are
expected to publish regulations clarifying this law by the end of August 2004.
 
 Results of Operations
 
 For the three months ended June 30, 2004 the Company's net income was
$1.29 million (a loss per share of $0.12 after adjusting for charges
associated with the early conversion and accretion of the Debentures) compared
to a net loss of $1.16 million ($0.02 per share) for the corresponding period
in 2003. The Company generated net income of $0.92 million for the six-month
period ended June 30, 2004 compared to a loss of $2.75 million for the
corresponding period in 2003.
 The Company's improved results for the second quarter of 2004 relative to
the same period in 2003 was due in part to a $3.58 million gain on the sale of
surplus land at the Quiruvilca mine and to significantly improved operating
margins, offset by a charge of $1.31 million relating to the conversion of the
Debentures, higher depreciation and amortization, exploration and general and
administrative charges. Revenue from metal sales was 67 per cent higher in the
second quarter of 2004 and 77 percent higher in the first six months of 2004
compared to the corresponding periods in 2003. Excluding the increase in
revenue as a result of the La Colorada mine reaching commercial production on
January 1, 2004, metal sales still increased by almost 50 per cent for the
three and six-month periods ended June 30, 2004 relative to the corresponding
periods in 2003 due to higher realized metal prices and slightly more tonnes
of concentrate sold. Revenues for the second quarter of 2004 increased 38 per
cent from the first quarter of 2004 due to the shipment of larger volumes of
concentrates. Our customers largely control the timing of concentrate
shipments, which are essential for revenue recognition purposes and as a
result our revenue profile can vary significantly between quarters even when
production has been relatively stable. The table below sets out select
quarterly results for the past ten quarters, stated in thousands of US
dollars, except per share amounts.
 
 -------------------------------------------------------------------------
  Net income
 (loss)
 Quarter Operating for the Net loss
 Year (unaudited) Revenue Profit(1) period per share
 -------------------------------------------------------------------------
 2004 June 30 $20,950 $4,419 $1,287 ($0.12)(2)
 March 31 $15,151 $3,983 ($366) ($0.05)(2)
 2003 Dec. 31 $12,857 $2,041 ($4,858) ($0.15)
 Sept. 30 $11,890 $1,690 ($390) ($0.01)
 June 30 $12,553 $1,220 ($1,156) ($0.02)
 March 31 $7,822 $393 ($1,573) ($0.03)
 2002 Dec. 31 $12,084 $379 ($14,040) ($0.35)
 Sept. 30 $11,195 ($252) ($17,387) ($0.40)
 June 30 $11,615 $808 ($1,247) ($0.03)
 March 31 $10,199 $997 ($1,303) ($0.03)
 -------------------------------------------------------------------------
 
 (1) Operating Profit/(Loss) is equal to total revenues less direct mine
 operating expenses
 (2) Includes charges associated with the early conversion and accretion
 of the Debentures
 
 Operating costs for the three months ended June 30, 2004 were $16.53
million, significantly higher than the second quarter of 2003. La Colorada
achieving commercial production is the principal reason for this increase,
partially offset by the fact that Quiruvilca lowered its operating costs
compared to the second quarter of 2003 due to closing the high cost North Zone
in August of 2003.
 Pan American's gross margin ratio (the difference between revenue and
operating costs divided by operating costs) improved to 27 per cent for the
three months ended June 30, 2004 from 11 per cent for the comparable period
last year. This improvement is due in large part to higher metals prices for
all of the metals that the Company produces and to a lesser extent from a
reduction in operating costs per ounce of silver produced.
 Depreciation and amortization charges for the second quarter increased
significantly to $2.0 million from $0.46 million a year before. Again, La
Colorada achieving commercial production is the principal reason for this
increase but depreciation and amortization has also increased as a direct
result of the Company's adoption of CICA Handbook Section 3110 - "Accounting
for Asset Retirement Obligations", which required the Company to increase its
asset carrying values by $7.9 million as at December 31, 2003. The
amortization of these higher asset values on a unit of production basis has
resulted in increased depreciation charges.
 For the three and six-month periods ended June 30, 2004, general and
administration costs have increased significantly from a year ago reflecting
increased staffing costs to manage the Company's continued growth, a stronger
Canadian dollar, legal expenses relating to the conversion offer to the
debentures holders and increased travel costs.
 The Company recognized $0.68 million stock-based compensation expense in
the second quarter of 2004, as a result of adopting CICA Handbook Section 3870
- "Stock-Based Compensation" in the fourth quarter of 2003. On a restated
basis, the comparable expense recorded in the quarter ended June 30, 2003 was
$0.71 million.
 Reclamation expense of $0.3 million in the second quarter of 2004 relates
to the accretion of the liability that the Company recognized by adopting CICA
Handbook Section 3110 - "Accounting for Asset Retirement Obligations" as at
December 31, 2003. Pursuant to this section, the Company recognized the
expected fair value of future site restoration costs as a liability, which is
accreted to its anticipated future value with a corresponding charge to the
statement of operations. There has been no change to the Company's
expectations of future site restoration costs during the quarter.
 Exploration and development expenses for the second quarter and six-month
period increased relative to 2003 reflecting the Company's active development
program at Manantial Espejo and other costs.
 Other income represents primarily interest received from the cash
balances the Company maintained during the quarter, which were substantially
higher than a year ago from proceeds of the Debentures, together with the
equity financing completed in March 2004.
 
 Production
 
 Pan American produced 2,399,395 ounces of silver in the second quarter of
2004, a 19 per cent increase from the corresponding period in 2003.
Significant increases in silver production were achieved at La Colorada and
the Pyrite Stockpile operation. Quiruvilca was able to produce the same
quantity of silver in the second quarter of 2004 as it had a year before by
processing 25 per cent fewer tonnes, but with higher silver grades after the
closure of the high-cost North Zone in August 2003. The Huaron mine was able
to overcome a challenging first quarter and recorded increased production and
lower operating costs in the second quarter. We expect this trend to continue
over the remainder of the year with Huaron producing 4.375 million ounces of
silver in 2004 at cash costs around $3.75 per ounce.
 While second-quarter production from the La Colorada mine increased to
415,828 ounces as compared to 229,557 ounces in 2003, production rates and
cash production costs have been disappointing. The Company now estimates that
total silver production from La Colorada for 2004 will be 1.8 million ounces,
approximately 40 per cent lower than anticipated at the start of the year. As
a consequence, cash costs will also be significantly higher than predicted at
$5.50 per ounce for the year. A combination of events has contributed to the
disappointing results: worse than expected ground conditions, which have
slowed both development and mining; increased dewatering requirements; and
areas of high clay refractory ore, which have negatively impacted recoveries
and mill throughput. A revised mining and processing plan has been developed
and is now being implemented to address all of these issues. The primary
component of the plan will see a switch to a more selective narrow vein mining
method, which will decrease tonnage but substantially increase grades. The
Company still expects La Colorada to achieve an annualized production rate of
3.5 million ounces at cash costs of less than $3.50 per ounce, however, the
timing will be determined by the speed of dewatering and execution of the new
mine plan.
 Consolidated cash costs for the second quarter of 2004 were $4.05 per
ounce compared to $4.40 per ounce in the second quarter of 2003, due to higher
silver production coupled with a larger by-product credit from base metal
sales. Cash costs improved significantly at both Huaron and Quiruvilca, but
were offset by higher than expected costs at La Colorada. The Company expects
consolidated cash costs to continue to decrease with improvements at La
Colorada and is still estimating consolidated silver production of
approximately 11.5 million ounces at a cash cost of $3.65 per ounce for 2004.
 
 Liquidity and Capital Resources
 
 At June 30, 2004, cash and cash equivalents plus short-term investments
were $118.74 million, a $24.06 million decrease from March 31, 2004. Cash flow
from financing activities in the second quarter was a negative $23.06 million,
primarily due to an $11.21 million cash payment equivalent to the interest
that the Company would have paid to the Debenture holders up until July 31,
2006 and repayment of bank loans of $12.61 million. Operating activities
generated $0.5 million after non-cash working capital movements absorbed $1.88
million due mostly to a reduction of accounts payable and repayment of
advances for metal shipments. Investing activities yielded $9.03 million in
cash and consisted primarily of liquidating $10.44 million of short-term
investments, receiving $3.58 million on the sale of land at Quiruvilca offset
by expenditures on property, plant and equipment of $2.49 million.
 Working capital at June 30, 2004 was $124.95 million, a reduction of
$3.68 million from the March 31, 2004. The decrease is reflected largely in a
$24.06 million decrease in cash and cash equivalents and a $21.27 million
decrease in current liabilities following the repayment of debt and reduction
of accounts payable.
 Capital resources at June 30, 2004 amounted to shareholders' equity of
$258.72 million, capital leases of $0.47 million and deferred revenue of $0.78
million. At June 30, 2004, the Company there were 66,638,380 common shares
issued and outstanding.
 Pan American mitigates the price risk associated with its base metal
production by selling some of its forecasted base metal production under
forward sales contracts, all of which are designated hedges for accounting
purposes. The Company incurred base metal hedging losses in the second quarter
of 2004 totaling $0.81 million (2003 - gain of $0.14 million), which have been
included in the revenue figure on the consolidated statement of operations. At
June 30, 2004, the Company had sold forward 19,055 tonnes of zinc at a
weighted average price of $1,044 per tonne ($0.474 per pound) and 9,970 tonnes
of lead at a weighted average price of $731 per tonne ($0.332 per pound). The
forward sales commitments for zinc represent approximately 55 per cent of the
Company's forecast zinc production until June 2005. The lead forward sales
commitments represent approximately 46 per cent of the Company's forecast lead
production until June 2005. At June 30, 2004, the cash offered prices for zinc
and lead were $981 and $884 per tonne, respectively. The mark to market value
at June 30, 2004 was a positive $0.1 million and at the date of this MD&A was
a negative $0.1 million.
 In June 2004, the Company fixed the price of 300,000 ounces of June's
in-concentrate silver production, which is due to be priced in July and
August. The price fixed for these ounces averaged $6.16 per ounce while the
spot price of silver was $5.91 on June 30, 2004.
 
 Exploration and Development Activities
 
 At Huaron, the recently completed $1 million exploration drilling program
successfully intersected several ore grade zones which could add significantly
to mineable ore reserves. A further $1.0 million will be spent on exploration
drilling this year, which will form part of feasibility study to expand the
mine's production. The costs of these programs are being capitalized.
 In Argentina, infill drilling at the 50 per cent owned Manantial Espejo
silver-gold project was completed and has confirmed continuity of gold and
silver mineralization in the primary vein systems. Hatch Engineers is
currently developing an operating and capital cost estimate for the project
and the results of this scoping study, which incorporates a completed resource
estimate, are expected to be available in September. The feasibility study for
the project is expected to be completed by early 2005. Pan American's share of
the feasibility costs in 2004 is expected to be approximately $1.6 million,
which are being expensed as incurred.
 At Alamo Dorado in Mexico, Pan American has concluded that a milling
operation as opposed to a heap leach processing facility, which was
contemplated in the original feasibility, will yield the best economic return.
Progress has been made towards securing water rights and towards the
permitting required for explosive storage. AMEC Simons Mining & Metals are in
the process of completing a capacity optimization study incorporating optimal
pit designs, which will culminate in the Company being in a position to
complete a mill option feasibility study and take a production decision by the
end of the year. The costs associated with ongoing permitting and related
feasibility costs are being capitalized.
 At the San Vicente property, a small-scale test mining program has
produced 247,494 ounces of silver in the first half of the year to Pan
American's account, at the same time as the Company has continued to move
forward with a feasibility study. EMUSA, a Bolivian mining company, will
continue to carry out the test mining program under a site services agreement.
 
 Subsequent Event
 
 The Company has launched its $36.7 million cash offer, through the Peru
Stock Exchange, for 100 per cent of the voting shares of Argentum, which is
expected to close in August. On February 9, 2004 Pan American announced the
signing of a binding agreement with a number of individuals to purchase 92 per
cent of the voting shares of Argentum.
 Pan American has acquired 100 per cent of Compania Minera Natividad
("Natividad") for $1.5 million, which holds numerous mineral concessions
adjacent to the Morococha mine.
 
 CONTACT:
 Brenda Radies, Vice-President Corporate Relations,
 (604) 806-3158, http://www.panamericansilver.com