That's about it for the good news. Factors that had a negative affect on earnings are numerous, serious and, in some cases, likely to be long lasting. Production capacity overall increased to 3.3 million ounces during the quarter, but just about the entire amount in sales increase was eaten up by increased production costs, particularly higher energy and labor costs. Overall, the grade quality of the ore being mined is lower than forecast. A hike in the price of zinc added to production costs, as did the company's inability to ship almost 25% of its concentrate product.

PAAS' mining operations are primarily in Mexico and South America. In Peru, mining operations are large scale and very efficient, with below industry-average production costs. The downside is that the ore grade is below forecast in quality, so it is still difficult to turn significant profits. Operations in Mexico have been plagued by astronomical production costs caused by start-up delays and consequent steep decrease in production capacity. Operations in Argentina are still in the pre-production phase. Annual output is forecast to reach in excess of 4 million ounces of silver and 60,000 ounces of gold. This facility will not begin to come into active production until well into 2008. Bolivian silver-zinc mining operations are exceeding previous targets, but PAAS must pay higher royalties, which affects profits.

Despite all the problems associated with mining production, Pan American Silver Corp. stock is up a healthy 20% for the year, beginning the year at $24.57, and closing recently at $29.47.