Financial & Operating Highlights
 
                             Three months ended         Nine months ended
                                 September 30              September 30
                              2005         2004         2005         2004
    -------------------------------------------------------------------------
    Consolidated Financial Highlights (in thousands of US dollars)
 
    Net income (loss)
     for the period        $    2,328   $    3,289   $     (536)  $    4,210
    Earnings (loss) per
     share                 $     0.03   $     0.05   $    (0.01)  $    (0.11)
    Cash flow from
     operations before
     working capital
     adjustments           $    6,959   $    7,135   $   11,402   $   11,580
    Capital spending       $   16,482   $39,327(xx)  $   40,575   $45,799(xx)
    Exploration expenses   $      545   $    1,213   $    2,703   $    2,878
    Cash and short-term
     investments           $   68,364   $   80,839   $   68,364   $   80,839
    Working capital        $   89,225   $   97,076   $   89,225   $   97,076
 
    (xx)Includes the
        acquisition of the
        Morococha mine for
        $36,214
 
    Consolidated Metals Recovered to Concentrate
 
    Silver metal - ounces   3,202,289    3,162,847    9,286,658    8,047,483
    Zinc metal - tonnes         9,977       10,377       28,094       24,899
    Lead metal - tonnes         4,113        4,865       11,492       12,955
    Copper metal - tonnes       1,042        1,100        3,020        2,370
 
    Consolidated Cost per Ounce of Silver (net of by-product credits)
 
    Total cash cost per
     ounce                 $     4.15   $     4.05   $     4.38   $     3.98
    Total production cost
     per ounce             $     5.52   $     5.21   $     5.72   $     5.11
 
    In thousands of US dollars
 
    Direct operating costs,
     royalties, treatment
     and refining charges  $   30,935   $   26,808   $   89,724   $   66,190
    By-product credits        (18,769)     (15,585)     (52,605)     (38,263)
    -------------------------------------------------------------------------
    Cash operating costs       12,165       11,224       37,119       27,927
    Depreciation,
     amortization &
     reclamation                3,998        3,195       11,391        7,903
    -------------------------------------------------------------------------
    Production costs       $   16,163   $   14,418   $   48,511   $   35,830
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
 
    Payable ounces of silver
     (used in cost per
     ounce calculations)    2,930,179    2,768,841    8,479,763    7,012,651
 
    Average Metal Prices
    Silver - London Fixing $     7.07   $     6.46   $     7.06   $     6.47
    Zinc - LME Cash
     Settlement per pound  $     0.59   $     0.44   $     0.59   $     0.47
    Lead - LME Cash
     Settlement per pound  $     0.40   $     0.42   $     0.43   $     0.39
    Copper - LME Cash
     Settlement per pound  $     1.70   $     1.29   $     1.58   $     1.27
 
 
 
    Mine Operations
     Highlights              Three months ended         Nine months ended
                                 September 30              September 30
    Morococha Mine(x)         2005         2004         2005         2004
    -------------------------------------------------------------------------
    Tonnes milled             119,953      112,580      347,023      112,580
    Average silver grade -
     grams per tonne              216          227          218          227
    Average zinc grade -
     percent                    4.58%        3.69%        4.30%        3.69%
    Silver - ounces           705,981      685,937    2,051,128      685,937
    Zinc - tonnes               4,455        3,089       11,554        3,089
    Lead - tonnes               1,724        1,161        4,228        1,161
    Copper - tonnes               227          284          685          284
 
    Total cash cost per
     ounce                 $     1.99   $     3.57   $     2.82   $     3.57
    Total production cost
     per ounce             $     3.68   $     5.21   $     4.54   $     5.21
 
    In thousands of US dollars
 
    Direct operating costs,
     royalties, treatments
     and refining charges  $    8,582   $    6,540   $   24,207   $    6,540
    By-product credits         (7,322)      (4,326)     (19,000)      (4,326)
    -------------------------------------------------------------------------
    Cash operating costs        1,260        2,215        5,207        2,215
    Depreciation,
     amortization,
     reclamation                1,077        1,015        3,178        1,015
    -------------------------------------------------------------------------
    Production costs       $    2,337   $    3,230   $    8,385   $    3,230
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Payable ounces of silver
     (used in cost per ounce
     calculations)            634,104      619,862    1,847,927      619,862
 
    (x) Production and cost figures are for Pan American's share only.
        Pan American's ownership was approximately 87% during the quarter.
 
 
    Huaron Mine               2005         2004         2005         2004
    -------------------------------------------------------------------------
    Tonnes milled             167,585      166,965      427,814      481,445
    Average silver grade -
     grams per tonne              212          228          214          230
    Average zinc grade -
     percent                    2.70%        3.13%        2.86%        3.22%
    Silver - ounces           940,400    1,062,949    2,747,189    3,126,738
    Zinc - tonnes               2,823        3,856        9,067       11,877
    Lead - tonnes               1,635        2,815        5,161        8,660
    Copper - tonnes               449          491        1,326        1,250
 
    Total cash cost per
     ounce                 $     5.13   $     3.85   $     5.04   $     3.89
    Total production cost
     per ounce             $     6.37   $     5.12   $     6.25   $     5.14
 
    In thousands of US dollars
 
    Direct operating costs,
     royalties, treatments,
     and refining charges  $   10,456   $   10,635   $   31,456   $   31,604
    By-product credits         (6,067)      (6,909)     (18,872)     (20,471)
    -------------------------------------------------------------------------
    Cash operating costs        4,389        3,726       12,583       11,133
    Depreciation,
     amortization,
     and reclamation            1,064        1,234        3,026        3,571
    -------------------------------------------------------------------------
    Production costs       $    5,453   $    4,960   $   15,610   $   14,704
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Payable ounces of silver
     (used in cost per
     ounce calculations)      856,228      968,624    2,496,885    2,859,286
 
 
 
    Mine Operations
     Highlights              Three months ended         Nine months ended
                                 September 30              September 30
    Quiruvilca Mine           2005         2004         2005         2004
    -------------------------------------------------------------------------
    Tonnes milled              95,539       98,625      275,792      284,590
    Average silver grade -
     grams per tonne              217          235          223          236
    Average zinc grade -
     percent                    3.34%        3.48%        3.21%        3.66%
    Silver - ounces           579,586      654,182    1,723,973    1,892,383
    Zinc - tonnes               2,698        2,920        7,472        8,994
    Lead - tonnes                 754          890        2,103        2,998
    Copper - tonnes               366          310        1,009          800
 
    Total cash cost per
     ounce                 $     3.55   $     3.55   $     4.07   $     3.42
    Total production cost
     per ounce             $     4.10   $     3.82   $     4.62   $     3.70
 
    In thousands of US dollars
 
    Direct operating costs,
     royalties, treatments
     and refining charges  $    6,914   $    6,304   $   20,251   $   18,688
    By-product credits         (5,007)      (4,142)     (13,723)     (12,673)
    -------------------------------------------------------------------------
    Cash operating costs        1,907        2,161        6,528        6,014
    Depreciation,
     amortization
     and reclamation              296          162          879          487
    -------------------------------------------------------------------------
    Production costs       $    2,203   $    2,324   $    7,407   $    6,502
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Payable ounces of silver
     (used in cost per
     ounce calculations)      537,719      608,010    1,603,593    1,757,629
 
 
    La Colorada Mine
    -------------------------------------------------------------------------
    Tonnes milled              56,746       34,822      156,209      126,211
    Average silver grade -
     grams per tonne              510          510          537          457
    Silver - ounces           817,744      441,959    2,249,760    1,352,549
    Zinc - tonnes                   -            -            -          122
    Lead - tonnes                   -            -            -          136
 
    Total cash cost per
     ounce                 $     5.48   $     7.05   $     5.48   $     6.41
    Total production cost
     per ounce             $     7.40   $     8.83   $     7.40   $     8.53
 
    In thousands of US dollars
 
    Direct operating costs,
     royalties, treatments
     and refining charges  $    4,832   $    3,316   $   13,300   $    9,324
    By-product credits           (374)        (208)      (1,009)        (793)
    -------------------------------------------------------------------------
    Cash operating costs        4,458        3,109       12,291        8,531
    Depreciation,
     amortization,
     reclamation                1,561          783        4,308        2,829
    -------------------------------------------------------------------------
    Production costs       $    6,019   $    3,982   $   16,599   $   11,360
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Payable ounces of silver
     (used in cost per
     ounce calculations)      813,752      440,854    2,242,188    1,331,696
 
 
 
                             Three months ended         Nine months ended
                                 September 30              September 30
    Pyrite Stockpile Sales    2005         2004         2005         2004
    -------------------------------------------------------------------------
    Tonnes sold                15,076       19,214       46,488       64,050
    Average silver grade -
     grams per tonne              327          374          327          378
    Silver - ounces           158,578      231,115      514,608      779,426
 
    Total cash cost per
     ounce                 $     1.72   $     0.10   $     1.76   $     0.08
    Total production cost
     per ounce             $     1.72   $     0.10   $     1.76   $     0.08
 
    In thousands of US dollars
 
    Direct operating costs,
     royalties, treatments
     and refining charges  $      152   $       13   $      510   $       34
    By-product credits              -                         -
    -------------------------------------------------------------------------
    Cash operating costs          152           13          510           34
    Depreciation,
     amortization,
     reclamation                    -                         -
    -------------------------------------------------------------------------
    Production costs       $      152   $       13   $      510   $       34
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Payable ounces of silver
     (used in cost per
     ounce calculations)       88,376      131,491      289,169      444,178
 
 
    San Vincente Mine(xx)
    -------------------------------------------------------------------------
    Tonnes milled                   -        7,920            -       18,649
    Average silver grade -
     grams per tonne                -          389            -          408
    Average zinc grade -
     percent                        -        7.48%            -        5.28%
    Silver - ounces                 -       86,704            -      210,451
    Zinc - tonnes                   -          512            -          817
    Copper - tonnes                 -           15            -           36
 
    (xx) Pan American does not include San Vincente production in its cost
         per ounce calculations. The production statistics represent Pan
         American's 50% interest in the mine.
 
 
 
                          Pan American Silver Corp.
 
                         Consolidated Balance Sheets
                       (In thousands of U.S. dollars)
 
                                                       Sep. 30      Dec. 31
                                                        2005         2004
                                                     (Unaudited)   (Audited)
    -------------------------------------------------------------------------
    Assets
    Current
      Cash and cash equivalents                      $   22,501   $   28,345
      Short-term investments                             45,863       69,791
      Accounts receivable, net of $Nil
       provision for doubtful accounts                   20,091       25,757
      Inventories                                        14,233       10,674
      Prepaid expenses                                    4,034        1,684
    -------------------------------------------------------------------------
    Total Current Assets                                106,722      136,251
 
    Mineral property, plant and equipment, net
     (note 3)                                           119,957      104,647
    Investment and non-producing properties (note 4)    142,202      125,863
    Direct smelting ore                                   2,343        2,671
    Other assets                                            518          647
    -------------------------------------------------------------------------
    Total Assets                                     $  371,742   $  370,079
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current
      Accounts payable and accrued liabilities       $   17,135   $   20,331
      Advances for metal shipments                            -          652
      Current portion of bank loans and capital lease         -          134
      Current portion of non-current liabilities            362          479
    -------------------------------------------------------------------------
    Total Current Liabilities                            17,497       21,596
 
    Liability component of convertible debentures            99          134
    Provision for asset retirement obligation
     and reclamation                                     32,858       32,012
    Provision for future income taxes                    31,594       33,212
    Other liabilities and provisions                      1,500        1,144
    Severance indemnities and commitments                   143          398
    Non-controlling interest                              2,368        1,379
    -------------------------------------------------------------------------
    Total Liabilities                                    86,059       89,875
    -------------------------------------------------------------------------
 
    Shareholders' Equity
    Share capital (note 5)
      Authorized:
        100,000,000 common shares of no par value
      Issued:
        December 31, 2004 - 66,835,378 common shares
        September 30, 2005 - 67,166,373 common shares   383,772      380,571
        Equity component of convertible debentures          636          633
        Additional paid in capital                       13,790       10,976
        Deficit                                        (112,515)    (111,976)
    -------------------------------------------------------------------------
    Total Shareholders' Equity                          285,683      280,204
    -------------------------------------------------------------------------
    Total Liabilities and Shareholders' Equity       $  371,742   $  370,079
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
 
                  See accompanying notes to consolidated financial statements
 
 
 
                          Pan American Silver Corp.
                    Consolidated Statements of Operations
                 (Unaudited - in thousands of U.S. dollars,
                  except for shares and per share amounts)
 
                                 Three months ended      Nine months ended
                                    September 30            September 30
                                  2005        2004        2005        2004
    -------------------------------------------------------------------------
    Revenue                    $  30,044   $  27,409   $  81,030   $  63,510
    Operating costs              (21,337)    (18,526)    (62,134)    (46,225)
    Depreciation and
     amortization                 (3,788)     (3,033)     (9,421)     (7,186)
    -------------------------------------------------------------------------
    Mine operating earnings        4,919       5,850       9,475      10,099
    -------------------------------------------------------------------------
    General and administrative,
     including stock-based
     compensation                  2,065       1,452       5,378       4,581
    Exploration                      545       1,213       2,703       2,878
    Asset retirement and
     reclamation                     735         302       1,674         905
    Interest and financing
     expenses                        126          66         312         823
    -------------------------------------------------------------------------
    Operating income (loss)        1,448       2,817        (592)        912
    Investment and other income    1,341         792       2,438       3,618
    -------------------------------------------------------------------------
    Income before taxes and
     non-controlling interest      2,789       3,609       1,846       4,530
    Income tax benefit
     (provision)                      79           -      (1,609)          -
    Non-controlling interest        (540)       (320)       (773)       (320)
    -------------------------------------------------------------------------
    Net income (loss) for the
     period                    $   2,328   $   3,289   $    (536)  $   4,210
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
 
    Attributable to common
     shareholders:
 
    Net income (loss) for the
     period                    $   2,328   $   3,289   $    (536)  $   4,210
    Accretion of convertible
     debentures                        -           -          (3)    (11,302)
    -------------------------------------------------------------------------
    Adjusted net income (loss)
     for the period attributable
     to common shareholders    $   2,328   $   3,289   $    (539)  $  (7,092)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted income
     (loss) per share          $    0.03   $    0.05   $   (0.01)  $   (0.11)
 
    Weighted average shares
     outstanding - Basic          66,943      66,660      66,943      61,947
 
    Weighted average shares
     outstanding - Diluted        71,926      72,213      71,532      67,499
 
                  See accompanying notes to consolidated financial statements
 
 
 
                          Pan American Silver Corp.
                    Consolidated Statements of Cash Flows
                 (Unaudited - in thousands of U.S. dollars)
 
                                 Three months ended      Nine months ended
                                    September 30            September 30
                                  2005        2004        2005        2004
    -------------------------------------------------------------------------
    Operating activities
    Net income (loss) for
     the period                $   2,328   $   3,289   $    (536)  $   4,210
    Reclamation expenditures        (324)       (327)       (824)       (919)
    Items not involving cash
      Gain on sale of assets        (453)          -        (453)     (3,583)
      Depreciation and
       amortization                3,788       3,033       9,421       7,186
      Non-controlling interest       540         320         773         320
      Accretion on convertible
       debentures                      -           -           -         366
      Stock-based compensation       345         518       1,347       1,887
      Debt settlement expense          -           -           -       1,208
      Asset retirement and
       reclamation                   735         302       1,674         905
      Future income tax           (1,313)          -      (1,618)          -
      Changes in operating
       working capital items
       (note 6)                   (1,419)     (6,722)     (1,477)    (11,065)
    -------------------------------------------------------------------------
    Cash generated by
     operations                    4,227         413       8,307         515
    -------------------------------------------------------------------------
    Financing activities
      Shares issued for cash       1,539         812       2,740      61,817
      Share issue costs                                                 (180)
      Interest payment on
       convertible debentures          -         (22)          -     (13,542)
      Repayment of bank loans
       and capital lease            (408)                   (693)    (13,096)
    -------------------------------------------------------------------------
    Cash generated by
     financing activities          1,131         790       2,047      34,999
    -------------------------------------------------------------------------
    Investing activities
      Mineral property,
       plant and equipment
       expenditures               (1,856)     (2,679)    (13,543)     (8,687)
      Investment and non-
       producing property
       expenditures              (14,626)       (434)    (27,032)       (988)
      Acquisition of net
       assets of subsidiary            -     (36,214)          -     (36,214)
      Maturity of short-term
       investments                 9,630       2,007      23,428      12,463
      Proceeds from sale of
       assets                        383           -         883       3,583
      Other                          164           -          66      (2,000)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                   (6,305)    (37,320)    (16,198)    (31,843)
    -------------------------------------------------------------------------
    (Decrease)/increase in
     cash and cash equivalents
     during the period              (947)    (36,117)     (5,844)      3,671
    Cash and cash equivalents,
     beginning of period          23,448      53,979      28,345      14,191
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $  22,501   $  17,862   $  22,501   $  17,862
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
 
    Supplementary Disclosures
    -------------------------
 
    Shares Issued for
     Compensation              $       -   $       0   $     410   $     245
    Share purchase warrants
     issued                    $   2,100   $       -   $   3,100   $       -
    Shares issued for
     conversion of convertible
     debentures                $       -   $       -   $  88,848   $       -
 
    Cash Payments
    Interest paid              $      18   $      18   $      36   $     409
                              -----------------------------------------------
                              -----------------------------------------------
 
    Taxes paid                 $   1,001   $     311   $   4,112   $     509
                              -----------------------------------------------
                              -----------------------------------------------
 
                  See accompanying notes to consolidated financial statements
 
 
 
                          Pan American Silver Corp.
 
               Consolidated Statements of Shareholders' Equity
                For the nine months ended September 30, 2005
        (in thousands of U.S. dollars, except for amounts of shares)
 
                                               Common Shares
                                         ------------------------ Convertible
                                            Shares       Amount   Debentures
    -------------------------------------------------------------------------
    Balance, December 31, 2003            53,009,851   $ 225,154   $  66,735
      Issued on the exercise of stock
       options                               785,095       9,437           -
      Issued on the exercise of share
       purchase warrants                     544,775       1,965           -
      Stock-based compensation                     -           -           -
      Issued for cash, net of issue costs  3,333,333      54,820           -
      Accretion of convertible debentures          -           -       2,871
      Issued on the conversion of
       convertible debentures              9,145,700      88,950     (68,973)
      Issued as compensation                  16,624         245           -
      Net income for the year                      -           -           -
    -------------------------------------------------------------------------
    Balance, December 31, 2004            66,835,378     380,571         633
      Issued on the exercise of stock
       options                               300,325       2,780           -
      Issued on the exercise of share
       purchase warrants                       1,186          11           -
      Issued warrants on settlement of debt        -           -           -
      Stock-based compensation on granting
       of stock options                            -           -           -
      Issued as compensation                  29,484         410           -
      Accretion of convertible debentures          -           -           3
      Other                                        -           -           -
      Net loss for the period                      -           -           -
    -------------------------------------------------------------------------
    Balance, September 30, 2005           67,166,373   $ 383,772   $     636
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
 
 
                                          Additional
                                            Paid in
                                            Capital     Deficit      Total
    -------------------------------------------------------------------------
    Balance, December 31, 2003             $  12,752   $(120,543)  $ 184,098
      Issued on the exercise of stock
       options                                (3,965)          -       5,472
      Issued on the exercise of share
       purchase warrants                           -           -       1,965
      Stock-based compensation                 2,189           -       2,189
      Issued for cash, net of issue costs          -           -      54,820
      Accretion of convertible debentures          -      (2,871)          -
      Issued on the conversion of
       convertible debentures                      -      (8,464)     11,513
      Issued as compensation                       -           -         245
      Net income for the year                      -      19,902      19,902
    -------------------------------------------------------------------------
    Balance, December 31, 2004                10,976    (111,976)    280,204
      Issued on the exercise of stock
       options                                   (51)          -       2,729
      Issued on the exercise of share
       purchase warrants                           -           -          11
      Issued warrants on settlement of debt    2,100           -       2,100
      Stock-based compensation on granting
       of stock options                          937           -         937
      Issued as compensation                       -           -         410
      Accretion of convertible debentures          -          (3)          -
      Other                                     (172)          -        (172)
      Net loss for the period                      -        (536)       (536)
    -------------------------------------------------------------------------
    Balance, September 30, 2005            $  13,790   $(112,515)  $ 285,683
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
 
 
 
    Pan American Silver Corp.
    Notes to Unaudited Interim Consolidated Financial Statements as at
    September 30, 2005 and 2004 and for the three month and nine month
    periods then ended.
 
    (Tabular amounts are in thousands of U.S. dollars, except for numbers of
    shares, price per share and per share amounts)
 
    1.  Nature of Operations
 
    Pan American Silver Corp (the "Company") is engaged in silver mining and
    related activities, including exploration, extraction, processing,
    refining and reclamation. The Company has mining operations in Peru,
    Mexico and Bolivia, project development activities in Argentina, Mexico
    and Bolivia, and exploration activities in South America.
 
    2.  Summary of Significant Accounting Policies
 
    a)  Basis of Presentation: The accompanying unaudited consolidated
    financial statements have been prepared in accordance with accounting
    principles generally accepted in Canada for interim financial information
    and follow the same accounting policies and methods as our most recent
    annual financial statements. Accordingly, they do not include all the
    information and footnotes required by accounting principles generally
    accepted in Canada for complete financial statements. In the opinion of
    management, all adjustments (consisting of normal recurring adjustments)
    considered necessary for a fair presentation have been included.
    Operating results for the three-month and nine month periods ended
    September 30, 2005 and 2004 are not necessarily indicative of the results
    that may be expected for the year ending December 31, 2005.
 
        The consolidated balance sheet at December 31, 2004 has been derived
    from the audited financial statements at that date but does not include
    all of the information and footnotes required by accounting principles
    generally accepted in Canada for complete financial statements. For
    further information, refer to the consolidated financial statements and
    footnotes thereto included in the Pan American Silver Corp. (the
    "Company") Annual Report for the year ended December 31, 2004.
 
    b)  Principles of Consolidation: The 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:
 
                                                             Operations and
                                     Ownership                 Development
    Subsidiary              Location  interest   Status         Projects
    -------------------------------------------------------------------------
 
    Pan American Silver
     S.A.C.                    Peru    100%   Consolidated   Quiruvilca Mine
    Compania Minera Huaron
     S.A.                      Peru    100%   Consolidated   Huaron Mine
    Compania Minera Argentum
     S.A.                      Peru   87.5%   Consolidated   Morococha Mine
    Minera Corner Bay S.A.    Mexico   100%   Consolidated   Alamo Dorado
                                                             Project
    Plata Panamericana S.A.
     de C.V.                  Mexico   100%   Consolidated   La Colorada Mine
 
        Inter-company balances and transactions have been eliminated in
    consolidation. Investments in corporate joint ventures where the Company
    has ownership of 50% or less and funds its proportionate share of
    expenditures are accounted for under the equity method. The Company has
    no investments in entities in which it has greater than 20% ownership
    interest accounted for using the cost method.
 
    c)  Revenue Recognition: Revenue is recognized when title and risk of
    ownership of metals or metal bearing concentrate passes to the buyer and
    when collection is reasonably assured. The passing of title to the
    customer is based on the terms of the sales contract. Product pricing is
    determined at the point revenue is recognized by reference to active and
    freely traded commodity markets.
 
    Under our concentrate sales contracts with third-party smelters, final
    commodity prices are set on a specified future quotational period,
    typically one to three months, after the shipment arrives at the smelter
    based on market metal prices. Revenues are recorded under these contracts
    at the time title passes to the buyer based on the expected settlement
    period. The contracts, in general, provide for a provisional payment
    based upon provisional assays and quoted metal prices. Final settlement
    is based on the average applicable price for a specified future period,
    and generally occurs from three to six months after shipment. Final sales
    are settled using smelter weights, settlement assays (average of assays
    exchanged and/or umpire assay results) and are priced as specified in the
    smelter contract.
 
        Third party smelting and refining costs are recorded as a reduction
    of revenue.
 
    d)  Cash and Cash Equivalents: Cash and cash equivalents include cash,
    bank deposits, and all highly-liquid investments with a maturity of three
    months or less at the date of purchase. The Company minimizes its credit
    risk by investing its cash and cash equivalents with major international
    banks and financial institutions located principally in Canada and Peru
    with a minimum credit rating of A1 as defined by Standard & Poor's. The
    Company's management believes that no concentration of credit risk exists
    with respect to investment of its cash and cash equivalents. Due to the
    short maturity of cash equivalents, their carrying amounts approximate
    their fair value.
 
    e)  Short-term Investments: Short-term investments principally consist of
    highly-liquid debt securities with original maturities in excess of three
    months and less than one year. These debt securities include corporate
    bonds with S & P rating of A- to AAA with an overall average of single A
    high. The Company classifies all short-term investments as
    available-for-sale securities. Unrealized gains and losses are recognized
    on these investments at the end of each period and are included in
    determining net income/(loss).
 
    f)  Inventories: Inventories include concentrate ore, dore, ore in
    stockpiles and operating materials and supplies. 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 actual production costs incurred or
    estimated net realizable value based upon the period ending prices of
    contained metal. 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. All metal
    inventories are stated at the lower of cost or market, with cost being
    determined using the first-in, first-out method. Supplies inventories are
    valued at the lower of average cost and replacement cost, net of
    obsolescence. Concentrate and dore inventory includes product at the mine
    site, the port warehouse and product held by refineries, and are also
    valued at lower of cost or market.
 
    g)  Property, Plant, and Equipment: Expenditures for new facilities, new
    assets or expenditures that extend the useful lives of existing
    facilities are capitalized and depreciated using the straight-line method
    at rates sufficient to depreciate such costs over the shorter of
    estimated productive lives of such facilities or the useful life of the
    individual assets ranging from five to twenty years. Certain mining
    equipment is depreciated using the units-of-production method based upon
    estimated total proven and probable reserves. Maintenance and repairs are
    expensed as incurred.
 
    h)  Operational Mining Properties and Mine Development: Mineral
    exploration costs are expensed as incurred. When it has been determined
    that a mineral property can be economically developed as a result of
    establishing proven and probable reserves, the costs incurred to develop
    such property including costs to further delineate the ore body and
    remove over burden to initially expose the ore body, are 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.
    Significant payments related to the acquisition of the land and mineral
    rights are capitalized as incurred. Prior to acquiring such land or
    mineral rights the Company generally 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 variable and is dependant 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. Interest expense allocable to the cost of
    developing mining properties and to construct new facilities is
    capitalized until the assets are ready for their intended use. Gains or
    losses from sales or retirements of assets are included in other income
    or expense. Ongoing mining expenditures on producing properties are
    charged against earnings as incurred. Major development expenditures
    incurred to increase production or extend the life of the mine are
    capitalized.
 
    i)  Asset Impairment: Management reviews and evaluates its long-lived
    assets for impairment when events or changes in circumstances indicate
    that the related carrying amounts may not be recoverable. An impairment
    is considered to exist if total estimated future cash flows or
    probability-weighted cash flows on an undiscounted basis are less than
    the carrying amount of the assets, including mineral property, plant and
    equipment, non-producing property, and any deferred costs such as
    deferred stripping. An impairment loss is measured and recorded based on
    discounted estimated future cash flows or the application of an expected
    present value technique to estimate fair value in the absence of a market
    price. Future cash flows include estimates of proven, probable, and a
    portion of resource recoverable ounces, gold and silver prices
    (considering current and historical prices, price trends and related
    factors), production levels, capital and reclamation costs, all based on
    detailed engineering life-of-mine plans. Assumptions underlying future
    cash flow estimates are subject to risks and uncertainties. Any
    differences between significant assumptions and market conditions and/or
    the Company's performance could have a material effect on any impairment
    provision, and on the Company's financial position and results of
    operations. In estimating future cash flows, assets are grouped at the
    lowest levels for which there are identifiable cash flows that are
    largely independent of cash flows from other groups. Generally, in
    estimating future cash flows, all assets are grouped at a particular mine
    for which there is identifiable cash flow.
 
    j)  Reclamation and Remediation Costs: Estimated future reclamation and
    remediation costs are based principally on legal and regulatory
    requirements.
 
        The asset retirement obligation is measured using assumptions for
    cash outflows such as expected labor costs, allocated overhead and
    equipment charges, contractor markup, and inflation adjustments to
    determine the total obligation. The sum of all these costs are
    discounted, using the credit adjusted risk-free interest rate from the
    time the Company expects to pay the retirement obligation to the time the
    Company incurs the obligation. The measurement objective is to determine
    the amount a third party would demand to assume the asset retirement
    obligation.
 
        Upon initial recognition of a liability for an asset retirement
    obligation, the Company capitalizes the asset retirement cost to the
    related long-lived asset. The Company amortizes this amount to operating
    expense using the units-of-production method. The Company evaluates the
    cash flow estimates at the end of each reporting period to determine
    whether the estimates continue to be appropriate. Upward revisions in the
    amount of undiscounted cash flows will be discounted using the current
    credit-adjusted risk-free rate. Downward revisions will be discounted
    using the credit-adjusted risk-free rate that existed when the original
    liability was recorded.
 
    k)  Foreign Currency Translation: The Company's functional currency is
    the U.S. dollar. The accounts of subsidiaries, not reporting in
    U.S. dollars, and which are integrated operations, are translated into
    U.S. dollars using the temporal method. Under this method, substantially
    all assets and liabilities of foreign subsidiaries are translated at
    exchange rates in effect at the date of the transaction or at end of each
    period. Revenues and expenses are translated at the average exchange rate
    for the period. Foreign currency transaction gains and losses are
    included in the determination of net income/(loss).
 
    l)  Stock-based Compensation Plans: The Company provides stock grants or
    options to buy common shares of the Company to directors, officers,
    employees and service providers. The board of directors grants such
    options for periods of up to ten years, vesting period of up to four
    years and at prices equal to or greater than the weighted average market
    price of the five trading days prior to the date the options were
    granted.
 
        The Company applies the fair-value method of accounting in accordance
    with recommendation of CICA Handbook Section ("CICA 3870"), "Stock-based
    Compensation and Other Stock-based Payments". Stock-based compensation
    expense is calculated using the Black-Scholes option pricing model or
    stock at market price.
 
    m)  Income Taxes: The Company computes income taxes in accordance with
    CICA Handbook Section ("CICA 3465"), "Income Taxes", that requires an
    asset and liability approach which results in the recognition of future
    tax assets and liabilities for the expected future tax consequences of
    temporary differences between the carrying amounts and the tax basis of
    assets and liabilities, as well as operating loss and tax credit
    carry-forwards, using enacted or substantially enacted, as applicable,
    tax rates in effect in the years in which the differences are expected to
    reverse.
 
    n)  Use of Estimates: The preparation of financial statements in
    conformity with accounting principles generally accepted in Canada
    requires the Company's management 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. Actual results could differ from those estimates.
 
    o)  Earnings (Loss) Per Share: Basic earnings (loss) per share
    calculations are based on the net income (loss) attributable to common
    shareholders for the period divided by the weighted average number of
    common shares issued and outstanding during the period.
 
        The diluted earnings/(loss) per share calculations are based on the
    weighted average number of common shares outstanding during the period,
    plus the effects of dilutive common share equivalents. This method
    requires that the dilutive effect of outstanding options and warrants
    issued should be calculated using the treasury stock method. This method
    assumes that all common share equivalents have been exercised at the
    beginning of the period (or at the time of issuance, if later), and that
    the funds obtained thereby were used to purchase common shares of the
    Company at the average trading price of common shares during the period.
 
        For convertible securities that may be settled in cash or shares at
    the holder's option the more dilutive of cash settlement and share
    settlement is used in computing diluted earnings/(loss) per share. For
    settlements in common shares, the if-converted method is used, which
    requires that returns on senior convertible equity instruments and income
    charges applicable to convertible financial liabilities be added back to
    net earnings/(loss), and the net earnings/(loss) is also adjusted for any
    non-discretionary changes that would arise from the beginning of the
    period (or at the time of issuance, if later).
 
        Potentially dilutive securities totaling 5,013,642 for the nine
    months ended September 30, 2005 (74,922, 874,308 and 4,064,412 shares
    arising from convertible debentures, outstanding and exercisable stock
    options and share purchase warrants, respectively) and 4,904,736 shares
    for the nine months ended September 30, 2004 (74,922, 1,015,344 and
    3,814,470 shares arising from convertible debentures, outstanding stock
    options and share purchase warrants, respectively) were not included as
    they were anti-dilutive.
 
        Reclassifications: Certain reclassifications of prior year balances
    have been made to conform to current year presentation.
 
    3.  Mineral property, plant and equipment
 
    Mineral property, plant and equipment consist of:
 
                        September 30, 2005            December 31, 2004
                  ----------------------------- -----------------------------
                   Cost  Accumulated  Net Book   Cost  Accumulated  Net Book
                         Amortization  Value           Amortization  Value
                  ----------------------------- -----------------------------
    Morococha
     mine, Peru   $ 32,347  $ (5,352) $ 26,995  $ 18,217  $ (2,099) $ 16,118
    La Colorada
     mine, Mexico   60,571    (9,435)   51,136    54,848    (5,261)   49,587
    Huaron mine,
     Peru           57,656   (18,733)   38,923    53,628   (16,039)   37,589
    Quiruvilca
     mine, Peru     17,007   (14,643)    2,364    25,601   (24,616)      985
    Other            1,121      (582)      539       904      (536)      368
                  -----------------------------------------------------------
    TOTAL         $168,702  $(48,745) $119,957  $153,198  $(48,551) $104,647
                  -----------------------------------------------------------
                  -----------------------------------------------------------
 
    4.  Investment and non-producing properties
 
    Acquisition costs of investment and non-producing properties together
    with costs directly related to mine development expenditures are
    deferred. Exploration expenditures on investment and non-producing
    properties are charged to operations in the period they are incurred.
 
    The carrying values of these properties are as follows:
 
                        September 30, 2005            December 31, 2004
                  ----------------------------- -----------------------------
                   Cost  Accumulated  Net Book   Cost  Accumulated  Net Book
                         Amortization  Value           Amortization  Value
                  ----------------------------- -----------------------------
    Morococha
     mine, Peru   $ 31,052  $      -  $ 31,052  $ 40,472  $      -  $ 40,472
    Manantial
     Espejo,
     Argentina       3,446         -     3,446     2,012         -     2,012
    Alamo Dorado,
     Mexico        104,361         -   104,361    81,692         -    81,692
    San Vicente,
     Bolivia         1,814         -     1,814         -         -         -
    Other            1,529         -     1,529     1,687         -     1,687
                  -----------------------------------------------------------
    TOTAL         $142,202  $      -  $142,202  $125,863  $      -  $125,863
                  -----------------------------------------------------------
                  -----------------------------------------------------------
 
    5.  Share Capital
 
    a)  Share Option Plan
 
        The Company has a comprehensive stock option plan for its employees,
    directors and officers. The plan provides for the issuance of incentive
    stock options to acquire up to a total of 10% of the issued and
    outstanding common shares of the Company on a non-diluted basis. The
    exercise price of each option shall be the weighted average trading price
    of the Company's stock on the five days prior to the award date. The
    options can be granted for a maximum term of 10 years with vesting
    provides determined by the Company.
 
        The following table summarizes information concerning stock options
    outstanding as at September 30, 2005:
 
                                Options Outstanding      Options Exercisable
                              -----------------------------------------------
                                Number      Weighted      Number
                              Outstanding    Average    Exercisable  Weighted
                                 as at      Remaining      as at      Average
       Range of      Year of   September   Contractual   September   Exercise
    Exercise Prices   Expiry   30, 2005   Life (months)  30, 2005      Price
    -------------------------------------------------------------------------
 
    $4.31 - $7.93      2006      86,333        8.51        86,333      $5.08
    $8.32 - $8.70      2007     308,500       25.41       266,500      $8.62
    $7.67 - $12.43     2008     357,308       32.99        37,308      $8.74
    $14.21 - $19.72    2009     424,108       42.45       214,108     $16.63
    $4.31 - $16.19     2010     294,000       61.32        74,000     $10.55
    -------------------------------------------------------------------------
                              1,470,249       34.14       678,249      $9.92
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
 
        During the nine month period ended September 30, 2005, 300,325
    common shares were issued for proceeds of $2.7 million in connection with
    the exercise of options. Also in the period the Company recognized
    $0.9 million of stock-based compensation expense for options issued in
    2005, 2004 and 2003. The Company used as its assumptions for calculating
    expense a discount rate of 3.4%, volatility of 55.6, 42.0, and 41.0 for
    expected lives of 3.0, 2.3, and 1.5, respectively and an exercise price
    of Cdn $18.80 per share.
 
    b)  Share purchase warrants
 
        On September 15, 2005 the Company issued 255,781 share purchase
    warrants to the International Finance Corporation ("IFC") as settlement
    for the cancellation of the obligation related to payments on the La
    Colorada Mine. The warrants have a fair value of $2.1 million and allow
    the holder to purchase 255,781 common shares of the Company for $16.91
    per share for a period of 5 years after the date of issue.
 
        As at September 30, 2005 there were warrants outstanding that allow
    the holders to purchase 3,808,626 common shares of the Company at
    Cdn$12.00 per share, which expire on February 20, 2008.
 
        In the period, 1,186 common shares were issued for proceeds of $11 in
    connection with the exercise of outstanding warrants.
 
 
    6.  Changes in operating working capital items
 
    The following table summarizes the changes in operating working capital
    items:
 
                                  Three Months Ended       Nine Months Ended
                                     September 30            September 30
                              -----------------------------------------------
                                   2005        2004        2005        2004
    -------------------------------------------------------------------------
    Short - term investments   $       -        (475)  $       -   $    (475)
    Accounts receivable             (155)     (3,320)      5,666      (5,047)
    Inventories                   (1,416)       (212)     (2,147)        803
    Prepaid expenses              (1,450)       (210)     (2,350)     (1,241)
    Accounts payable and accrued
     liabilities                   2,722      (1,635)     (1,739)     (3,029)
    Advances for metal shipments    (367)     (1,388)       (652)     (3,292)
    Severance, indemnities and
     commitments                    (753)        518        (255)      1,216
    -------------------------------------------------------------------------
                               $  (1,419)  $  (6,722)  $  (1,477)  $ (11,065)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
 
    7.  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 separately. 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 September 30, 2005
    -------------------------------------------------------------------------
                       Mining & Development  Investment
                       --------------------     and      Corporate    Total
                         Mexico      Peru   exploration
    -------------------------------------------------------------------------
    Revenue from
     external
     customers         $   5,355  $  24,731  $       -  $     (42) $  30,044
    Investment and
     other income      $      (5) $      13  $     420  $     913  $   1,341
    Interest and
     financing
     expenses          $       -  $    (154) $       -  $      28  $    (126)
    Exploration        $       -  $    (511) $    (193) $     159  $    (545)
    Depreciation and
     amortization      $  (1,489) $  (2,274) $      (8) $     (17) $  (3,788)
    Net income (loss)
     for the period    $  (1,803) $   3,358  $    (271) $   1,044  $   2,328
    Property, plant and
     equipment capital
     expenditures      $  12,186  $   4,033  $   1,970  $  (1,707) $  16,482
    Segment assets     $  82,362  $ 136,518  $  89,761  $  63,101  $ 371,742
 
 
                            For the three months ended September 30, 2004
    -------------------------------------------------------------------------
                       Mining & Development  Investment
                       --------------------     and      Corporate    Total
                         Mexico      Peru   exploration
    -------------------------------------------------------------------------
    Revenue from
     external
     customers         $   2,901  $  25,155  $       -  $    (647) $  27,409
    Investment and
     other income      $       3  $       5  $     559  $     225  $     792
    Interest and
     financing
     expenses          $       -  $     (66) $       -  $       -  $     (66)
    Exploration        $      (1) $     (48) $    (387) $    (777) $  (1,213)
    Depreciation and
     amortization      $    (618) $  (2,404) $       -  $     (11) $  (3,033)
    Net income (loss)
     for the period    $    (993) $   6,360  $     169  $  (2,247) $   3,289
    Property, plant and
     equipment capital
     expenditures      $   1,493  $  36,537  $     422  $     875  $  39,327
    Segment assets     $  51,530  $ 127,461  $  90,575  $  72,382  $ 341,948
 
 
                            For the nine months ended September 30, 2005
    -------------------------------------------------------------------------
                       Mining & Development  Investment
                       --------------------     and      Corporate    Total
                         Mexico      Peru   exploration
    -------------------------------------------------------------------------
    Revenue from
     external
     customers         $  14,738  $  69,792  $       -  $  (3,500) $  81,030
    Investment and
     other income      $      (5) $     439  $     399  $   1,605  $   2,438
    Interest and
     financing
     expenses          $       -  $    (267) $       -  $     (45) $    (312)
    Exploration        $      (2) $    (511) $  (2,077) $    (113) $  (2,703)
    Depreciation and
     amortization      $  (3,439) $  (5,944) $      (8) $     (30) $  (9,421)
    Net income (loss)
     for the period    $  (1,952) $   8,994  $  (2,418) $  (5,160) $    (536)
    Property, plant and
     equipment capital
     expenditures      $   26,702 $  12,149  $   3,404  $  (1,680) $  40,575
    Segment assets     $   82,362 $ 136,518  $  89,761  $  63,101  $ 371,742
 
 
                            For the nine months ended September 30, 2004
    -------------------------------------------------------------------------
                       Mining & Development  Investment
                       --------------------     and      Corporate    Total
                         Mexico      Peru   exploration
    -------------------------------------------------------------------------
    Revenue from
     external
     customers         $   8,912  $  57,295  $       -  $  (2,697) $  63,510
    Investment and
     other income      $      14  $   3,438  $     785  $    (619) $   3,618
    Interest and
     financing
     expenses          $    (229) $    (229) $       -  $    (365) $    (823)
    Exploration        $     (15) $     (48) $    (556) $  (2,259) $  (2,878)
    Depreciation and
     amortization      $  (2,238) $  (4,915) $       -  $     (33) $  (7,186)
    Net income (loss)
     for the period    $  (2,386) $  16,822  $     203  $ (10,429) $   4,210
    Property, plant and
     equipment
    Capital
     expenditures      $   4,472  $  39,456  $     897  $   1,064  $  45,889
    Segment assets     $  51,530  $ 127,461  $  90,575  $  72,382  $ 341,948
 
 
 
    Management's Discussion and Analysis
    of Financial Condition and Results of Operations
    For the Three Months Ended September 30, 2005
    October 24, 2005

This Management's Discussion and Analysis ("MD&A") of Pan American Silver Corp. (the "Company") focuses on significant factors that affected the performance, and those that may affect the future performance, of the Company and its subsidiaries'. The MD&A should be read in conjunction with the unaudited consolidated financial statements of the Company, and the notes thereto, for the three months ended September 30, 2005 and 2004. In addition, the following should be read in conjunction with the audited Consolidated Financial Statements of the Company, and the notes thereto, for the year ended December 31, 2004. Note 2 to such financial statements outlines the significant accounting policies that have been applied consistently for the nine months ended September 30, 2005. All figures are in United States dollars unless otherwise noted.

RESULTS OF OPERATIONS

Net income for the three months ended September 30, 2005 was $2.3 million (an earnings per share of $0.03) compared to net income of $3.3 million (an earnings per share of $0.05) for the corresponding period in 2004. The Company had a net loss of $0.5 million for the nine-month period ended September 30, 2005 compared to net income of $4.2 million for the corresponding period in 2004. Included in 2004 net income was a $3.6 million gain on the sale of surplus land at the Quiruvilca mine, offset by a charge of $1.3 million relating to the early conversion of 5.25 per cent convertible unsecured senior subordinated debentures previously issued by the Company (the "Debentures").

Revenue from metal sales for the third quarter of 2005 was $30 million, a 10 per cent increase from the corresponding period in 2004. Revenue in the third quarter of 2005 benefited from higher realized silver, zinc and copper prices than the previous year's third quarter. The effects of higher realized prices and increased silver production were offset partially by: (i) lower zinc concentrate shipments from the Quiruvilca and Huaron operations as compared to during the third quarter of 2004; (ii) base metal hedging settlements totaling ($0.4 million) (as compared to a loss of $0.6 million in 2004); and (iii) by the recently introduced Peruvian mining royalties, which amounted to $0.2 million (as compared to $nil royalty payments in 2004). For the nine-month period ended September 30, 2005, revenue increased by $17.5 million over the revenue for the comparable period of 2004. The Morococha mine, which was acquired with effect from July 1, 2004, is the main reason for this increase. Morococha recorded revenue of $27.1 million in the first nine months of 2005 compared to $8.3 million in 2004.

Operating costs for the three months ended September 30, 2005 were $21.3 million, a $2.8 million increase from the operating costs recorded in the same period of 2004. A 63 per cent increase in the number of tonnes mined and milled during the quarter at the La Colorada mine compared to the third quarter of 2004 is the main reason for the increase in operating costs. Peruvian workers' participation and a third party's one-third participation in the Pyrite Stockpile operation, which together totaled $0.4 million during the third quarter (as compared to $nil in such costs in 2004), were also significant factors behind the increase in operating costs over last year. In addition, the Company has experienced the effects of industry-wide escalations in major cost items, such as energy, freight and labor over the last year. For the nine-month period ended September 30, 2005, operating costs increased over the comparable period in 2004 primarily due to the acquisition of the Morococha mine. Morococha recorded operating costs of $17.3 million in the first nine months of 2005 compared to $5.1 million in 2004.

Mine operating earnings in the third quarter of 2005 were $4.9 million (2004 - $5.9 million), a 60 per cent increase over the mine operating earnings generated in the second quarter of 2005. As reflected in the following table, the third quarter of 2005 represents the tenth consecutive quarter that the Company has generated mine operating earnings. The table below sets out select quarterly results for the past eleven quarters, which are stated in thousands of US dollars, except for the per share amounts.

                                        Mine
                                      operating   Net income/    Net income/
    Year     Quarter                  earnings/    (loss) for     (loss) per
           (unaudited)    Revenue     (loss)(1)   the period        share
    -------------------------------------------------------------------------
    2005     Sept. 30    $  30,044    $   4,919    $   2,328     $   0.03
              June 30    $  23,905    $   3,073    $      24     $   0.00
             March 31    $  27,081    $   1,483    $  (2,891)    $  (0.05)
    -------------------------------------------------------------------------
    2004      Dec. 31    $  29,386    $   2,766    $  15,692     $   0.23
             Sept. 30    $  27,409    $   5,850    $   3,289     $   0.05
              June 30    $  20,950    $   2,411    $   1,287     $  (0.12)(2)
             March 31    $  15,151    $   1,838    $    (366)    $  (0.05)(2)
    -------------------------------------------------------------------------
    2003      Dec. 31    $  12,857    $      81    $  (4,858)    $  (0.15)(2)
             Sept. 30    $  11,890    $   1,258    $    (390)    $  (0.01)(2)
              June 30    $  12,553    $     758    $    (442)    $  (0.01)
             March 31    $   7,822    $     (78)   $  (1,104)    $  (0.02)
 
    (1) Mine operating earnings/(loss) are equal to revenues less operating
        costs and depreciation and amortization
    (2) Includes charges associated with early conversion and accretion of
        the Debentures

Depreciation and amortization charges for the third quarter of 2005 increased to $ 3.8 million from $3.0 million recorded for the corresponding period in 2004. This increase is primarily due to the increased production at La Colorada, as increased production generally has a direct bearing on the depreciation and amortization recorded in a given period.

General and administration costs for the three-month period ended September 30, 2005, including stock-based compensation, increased to $2.1 million from $1.5 million recorded in the comparable quarter in 2004. This increase is due mainly to higher travel costs, a stronger Canadian dollar relative to the US dollar and higher salary expense.

Exploration expenses recorded for the third quarter of 2005 were $0.5 million, as compared to $1.2 million recorded for the comparable quarter in 2004. The exploration expenses for the third quarter of 2005 are attributed to exploration work at the Morococha mine and feasibility activity conducted at the Company's 50 per cent owned Manantial Espejo property in Argentina. At Morococha, the Company was active with seven drill rigs during the third quarter, developing both known resource areas and discovering previously unknown mineralized areas. A total of $1.4 million was spent on exploration activities at Morococha during the quarter, of which $0.9 million was determined to be for the development and extension of known resource areas, and therefore capitalized, while the balance was expensed. Exploration expenses for the comparable quarter of 2004 reflected higher activity levels relating to the feasibility study at Manantial Espejo.

Reclamation expenses for the third quarter of 2005 increased to $0.7 million from $0.3 million incurred in the corresponding period in 2004. These costs are related to the accretion of the liability that the Company recognized on all its mining operations by adopting CICA Handbook Section 3110 - "Accounting for Asset Retirement Obligations" as at December 31, 2003. The Company's expectations for future site restoration costs at its mines did not change during the quarter.

Interest and financing expenses incurred in the third quarter of 2005 were $0.1 million, which is similar to the amount incurred during the same period in 2004. Year to date interest expenses have been reduced as a result of the Company successfully inducing the early conversion of 99 per cent of the Debentures and prepaying all bank debt in the second quarter of 2004.

Investment and other income for the third quarter of 2005 increased to $1.2 million from $0.8 million in the corresponding period of 2004. This is primarily represented by interest income received from cash balances the Company maintained during the quarter. In addition to interest income, the Company also recognized a $0.3 million gain on the sale of a crusher owned by a Mexican subsidiary.

Income tax benefit of $0.1 million was recorded in the third quarter of 2005 (2004 - $nil) as a result of the Company reducing its future income tax liability by $1.3 million, which was partially offset by current income tax expenses. The Company expects to utilize tax assets to reduce income taxes payable in Peru to a greater extent than originally assumed, resulting in a reduction in the valuation allowance applied to future income tax assets and a corresponding credit to the income tax provision for the third quarter. For the nine-month period ended September 30, 2005, the Company recorded a provision for income tax of $1.6 million (2004 - $nil). These expenses were a result of the Company generating taxable earnings at its Huaron and Morococha mines in Peru. During the comparable period in 2004 income taxes were not payable due to utilization of tax loss carry forwards.

METAL PRODUCTION

Pan American produced 3,202,289 ounces of silver in the third quarter of 2005, the highest quarterly silver production achieved by the Company in its eleven year history. Record silver production was achieved at both La Colorada and Morococha during the quarter. For the first nine months of 2005, silver production has increased by 1.2 million ounces or 15 per cent as compared to year-to-date production in 2004. This increase in the silver production was achieved primarily through the acquisition of Morococha, which was effective as of July 1, 2004. Morococha produced over 2 million ounces at a cash cost of $2.82 per ounce for the Company in the first nine months of 2005 compared to 685,937 ounces produced at a cash cost of $3.57 per ounce in 2004. Silver production from the La Colorada operation in the first nine months of 2005 increased by 66 per cent and cash costs per ounce decreased 14 per cent compared to the production in the comparable period in 2004. This increase in silver production at La Colorada more than made up for the decrease in silver production at each of the Company's Huaron, Quiruvilca and Pyrite operations in Peru when compared to production levels achieved in the same period of 2004.

As shown in the following table, zinc and copper production for the first nine months of the year were also significantly higher than production in the corresponding period of 2004, even without production from the San Vicente mine in Bolivia. The increase was due to the addition of Morococha. Lead production is trailing last year's production levels by 11 per cent over the first nine months of the year due to lower lead grades at both Huaron and Quiruvilca.

                    Three months ended             Nine months ended
                       September 30                  September 30
                                           %                             %
                     2005        2004    Change    2005        2004    Change
    -------------------------------------------------------------------------
    Silver metal
     - ounces     3,202,289   3,162,847     1   9,286,658   8,047,483    15
    Zinc metal
     - tonnes         9,977      10,377    (4)     28,094      24,899    13
    Lead metal
     - tonnes         4,113       4,865   (15)     11,492      12,955   (11)
    Copper metal
     - tonnes         1,042       1,100    (5)      3,020       2,370    27

The Morococha mine maintained its trend of increasing silver production and lowering its cash cost per ounce over the first three quarters of 2005. For the three-month period ended September 30, 2005, Morococha produced 705,981 ounces of silver at a cash cost of $1.99 per payable ounce.

The results of the Company's exploration activities at Morococha, which were contained in a news release dated July 21, 2005 have lead to a reallocation of $9.4 million of Morococha's carrying value from "Investment in non-producing properties" to "Mineral property, plant and equipment" on the Company's balance sheet. The reallocation is based on the upgrading of resources to reserves achieved from these exploration activities.

The La Colorada mine production continued its improving trend during the third quarter with record silver production of 817,744 ounces at cash costs of $5.48 per payable ounce. For the first nine months of 2005, La Colorada has achieved a production increase of 66 per cent compared to the corresponding period in 2004 by processing 24 per cent more tonnes of ore at 18 per cent higher grades.

During the third quarter of 2005, the Quiruvilca mine managed to reduce its cash costs per payable ounce from those recorded in each of the first two quarters of 2005. While the mine continued to encounter slightly lower silver grades than in the previous year, cost control measures and higher by-product credits from base metal production enabled the Quiruvilca mine to produce 579,586 ounces at the same cash cost of $3.55 per payable ounce recorded in the comparable quarter of 2004.

At the Huaron mine, mining and processing rates in the third quarter of 2005 continued to increase over those achieved in the first two quarters of the year, however grades and recoveries remained significantly lower than those historically experienced. Lower grades and recoveries had a negative impact on silver production, which resulted in approximately 12 per cent lower production than that recorded in the third quarter of 2004; however silver production was higher than that achieved in the first two quarters of 2005. Base metal grades and recoveries have also declined due to a change in the ore type in the areas currently being mined. The significance of lower grades and recoveries from Huaron's base metal production can be seen in the 33 per cent increase over last year's cash costs per payable ounce. Cash costs per payable ounce for the third quarter of 2005 were $5.13 per ounce, a $1.28 per ounce increase from costs recorded a year ago. Lower base metal production, which resulted in a reduction in the by-product credit, contributed approximately $0.90 to the increase in costs per ounce. An intensive metallurgical test program continues at the mine in an effort to return base metal recoveries to historical levels.

The Company's Pyrite Stockpile operation produced 158,578 ounces of silver during the quarter at a cash cost of $1.72 per payable ounce. Production from the Stockpiles for the third quarter of 2005 was 31 per cent lower than the production in the comparable period of 2004 due to lower tonnage demand and lower silver grades. The production rates from the Stockpile operation are entirely dependent on the demand for this ore from the purchaser, Doe Run Peru, and as a consequence are not controlled by management. Costs per payable ounce are higher than last year due to the fact that Volcan Minera S.A. ("Volcan") became entitled to a one-third participation in the net operating cash flow of the Stockpile operation in December 2004, which is treated as a cost to the operation.

In Bolivia, the Company's subsidiary, Pan American Silver (Bolivia) S.A. ("PAS Bolivia") began to mine and stockpile ore at the San Vicente mine in the third quarter of 2005. As of mid-October PAS Bolivia recommenced processing ore on a toll basis at a nearby facility. PAS Bolivia now expects to produce approximately 0.2 million ounces of silver in 2005 from San Vicente at a cash cost of under $3.00 per ounce; while continuing to work towards producing from its own mill by mid-2006. During the third quarter of 2005, the Company concluded negotiations with EMUSA, a Bolivian mining company and a third-party concentrates trader with respect to the ownership of PAS Bolivia. Pursuant to the agreement, Pan American will increase its interest to 55 per cent and will operate the San Vicente mine.

The Company expects consolidated silver production for 2005 to be approximately 12.5 million ounces, in-line with the revised forecast provided at the end of the second quarter of 2005. The Company expects consolidated cash costs per payable ounce over the remainder of the year to be similar to the third quarter's costs and estimates total consolidated cash cost for 2005 to be below $4.30 per payable ounce.

CASH AND TOTAL PRODUCTION COSTS PER OUNCE FOR PAYABLE SILVER

Consolidated cash costs per ounce for the three-month period ended September 30, 2005 were $4.15 per payable ounce of silver, which is slightly higher than the $4.05 per payable ounce for the corresponding period of 2004 but significantly lower than the $4.50 per payable ounce for the first half of 2005. Industry-wide cost escalations in energy and consumables, new Peruvian workers' participation and Volcan's participation in the Pyrite Stockpile operation, which totaled $0.4 million during the third quarter (2004 - $nil) and $1.3 million in the first nine months of 2005 (2004 - $nil), were the primary reasons for the increase in cash costs from last year.

Taking effect from the first quarter of 2005, the Company changed its method for calculating cash and total costs per ounce of silver. In the past, these calculations were based on produced ounces, as set out on page 11 of the Consolidated Financial Statements for the year ended December 31, 2004. The Company now calculates its cash and total costs per ounce on the more widely- used methodology based on the silver ounces for which the Company is paid. Costs per ounce for the third quarter and the first nine months of 2004 costs per ounce have been recalculated on the same basis to ensure that the comparables are consistent with this new method.

The non-GAAP measures of cash and total cost per ounce of payable silver are used by the Company to manage and evaluate operating performance at each of the Company's mines and are widely reported in the silver mining industry as benchmarks for performance, but do not have standardized meaning. To facilitate a better understanding of this measure as calculated by the Company, we have provided a detailed reconciliation of this measure to our operating costs, as shown in our unaudited Consolidated Statement of Operations for the three- and nine-month periods ended September 30, 2005.

                                   Three months ended     Nine months ended
                                       September 30          September 30
                                     2005       2004       2005       2004
                                 --------------------------------------------
    Operating Costs               $  21,337  $  18,526  $  62,134  $  46,226
 
    Add/(Subtract)
    Smelting, refining,
     and transportation
     charges                          9,469      8,267     27,204     19,426
    By-product credits              (19,815)   (16,530)   (55,431)   (39,209)
    Mining royalties
     and worker's
     participation                      125        219        379        251
    Change in
     inventories                        733        747      2,464      1,041
    Other                               492        476      1,157        674
    Minority interest
     adjustment                        (175)      (484)      (779)      (484)
    -------------------------------------------------------------------------
    Cash Operating
     Costs                A       $  12,165  $  11,222  $  37,126  $  27,925
 
    Add/(Subtract)
    Depreciation and
     amortization                     3,788      3,033      9,421      7,186
    Asset retirement
     and reclamation                    736        302      1,674        905
    Change in
     inventories                        (45)         0      1,016          0
    Other                              (327)        82       (245)        34
    Minority interest
     adjustment                        (154)      (222)      (475)      (222)
    -------------------------------------------------------------------------
    Production Costs      B       $  16,163  $  14,416  $  48,518  $  35,828
 
    Payable Ounces
     of Silver            C       2,930,179  2,768,841  8,479,763  7,012,651
 
                                 --------------------------------------------
    Total Cash Cost
     per Ounce      (A(x)1000)/B  $    4.15  $    4.05  $    4.38  $    3.98
                                 --------------------------------------------
    Total Produc-
     tion Costs
     per Ounce      (B(x)1000)/C  $    5.52  $    5.21  $    5.72  $    5.11
                                 --------------------------------------------
 
    LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2005, cash and cash equivalents plus short-term investments were $68.4 million, a $10.6 million decrease from June 30, 2005. Investing activities for the three months ended September 30, 2005 used a net $6.3 million and consisted primarily of expenditures on mineral property, plant and equipment of $16.5 million, mostly at Alamo Dorado and Morococha, which were partially funded by the maturity of short-term investments of $9.6 million. Cash flow provided from operating activities was $4.2 million for the third quarter of 2005, after accounting for changes in non-cash operating working capital items which utilized $2.7 million. Financing activities in the third quarter consisted of the exercise of stock options yielding $1.5 million and the repayment of advances utilizing $0.4 million.

Working capital at September 30, 2005 was $89.2 million, a reduction of $7.4 million from June 30, 2005. This reduction is largely the result of a $10.6 million decrease in cash and cash equivalents plus short-term investments, and was partially offset by a $1.5 million increase in and prepaid expenses, a $1.4 million increase in inventories and a $0.3 million decrease in current liabilities.

Capital resources at September 30, 2005 amounted to shareholders' equity of $285.7 million. At September 30, 2005, the Company had 67,166,373 common shares issued and outstanding.

During the third quarter, the Company issued 255,781 warrants to the International Finance Corporation ("IFC") in exchange for the termination of past and future obligations relating to production from the La Colorada mine. Each warrant issued entitles the IFC to purchase one common share of Pan American at a price of US$ 16.91 over a five-year period. These warrants were negotiated with the IFC during the second quarter of 2005 and issued as settlement of the Company's obligation to the IFC with a fair value of $2.1 million.

Based on the Company's financial position at September 30, 2005 and the operating cash flows that are expected over the next twelve months, management believes that the Company's liquid assets are more than sufficient to fund planned operating and project development and to sustain capital expenditures and discharge liabilities as they come due. Other than as disclosed elsewhere in the unaudited consolidated financial statements for the three months ended September 30, 2005 and 2004, and the related notes thereto, the Company did not have any known material contractual obligation or any off-balance sheet arrangements at the date of this MD&A.

Pan American mitigates the price risk associated with its base metal production by selling some of its forecasted base metal production pursuant to forward sales contracts, all of which are designated hedges for accounting purposes. At September 30, 2005, the Company had sold forward 10,000 tonnes of zinc at a weighted average price of $1,074 per tonne ($0.487 per pound). These forward sales commitments represent approximately 45 per cent of the Company's forecast zinc production until March 2006. At September 30, 2005, the cash offered prices for zinc was $1,402 per tonne. The negative mark to market value at September 30, 2005 was $3.2 million.

At the end of the third quarter of 2005, the Company had fixed the price of 1,000,000 ounces of silver produced during the third quarter and contained in concentrates, which are due to be priced in October and November of 2005 under the Company's concentrate sales contracts. The price fixed for these ounces averaged $7.24 per ounce while the spot price of silver on September 30, 2005 was $7.42 per ounce.

In anticipation of capital expenditures in Mexican pesos ("MXN") relating to the construction of Alamo Dorado, the Company has purchased MXN 301 million settling between October 2005 and June 2006 to match anticipated spending at an average MXN/US$ exchange rate of 11.25. These forward contracts have been designated as hedges for accounting purposes. At September 30, 2005, the spot exchange rate for MXN/US$ was 10.78 and the positive mark to market value of the Company's position was $0.4 million.

EXPLORATION AND DEVELOPMENT ACTIVITIES

The development of the Company's Alamo Dorado project in Mexico is progressing on budget and on schedule with production still planned for late 2006. Over 60 per cent of the engineering design work and about 20 per cent of the construction work is now complete. A total of 120,000 tonnes of waste rock was mined from the pit area during the month of September and the stockpiling of ore-grade material has commenced. Plant site civil work continues ahead of schedule with completion by the end of the third quarter 2005 of: (i) the rough grading for the crusher, stockpile, and grinding circuit areas; (ii) the truck maintenance and warehouse facility; and (iii) the erection of the laboratory and offices.

The Company spent $10.5 million on equipment and construction-related activities at Alamo Dorado for the quarter ended September 30, 2005. Over the remainder of the year, the Company anticipates spending an additional $13 million on the construction of Alamo Dorado, which will be funded out of the Company's treasury. The expected total capital costs for the project are approximately $77 million, including start-up working capital and a contingency allowance.

The Company is in the final stages of feasibility study for its 50 per cent owned Manantial Espejo project in Argentina. During the quarter, the Company continued to develop an environmental impact study, which will be submitted to the Argentine authorities in November 2005. In addition, the Company continued detailed capital and operating cost estimations which will culminate in a completed feasibility study for the project by late 2005. Pan American's share of additional costs to complete the feasibility study is expected to be approximately $0.3 million.