MAG , Fresnillo busy at Juanicipio

MAG Silver (MAG-T, MVG-X) has ap – proved a US$25-million budget for mine permitting and underground develop – ment work at its Juanicipio silver proj- ect in Mexico’s Zacatecas state, a joint- venture with Fresnillo (FNLPF-O, FRES-L).

If the permits are in hand before the end of this year, the partners can start breaking ground on a decline in Janu- ary. The 18-month project spanning this year and next would involve spending $10 million in 2012 and $15 million in 2013.
The partners have kept their original exploration budget this year at US$8.5 million.
The Juanicipio project hosts three identified high-grade silver (plus gold, lead and zinc) veins: the Valdecanas V ein, Juanicipio V ein and Las V enadas.
“The advancement of the project with the co-operation of the joint-venture partners, combined with the deposit’s current resources and exploration up- side, increases the attractiveness of the asset for mining companies, not just Fresnillo,” John Hayes of BMO Capital Markets writes in a note to clients.
The multi-million dollar budget in – cludes the first 2,500 metres of under- ground development on the project, 44% of which is owned by MAG Silver and the remainder by operator Fresnillo.
According to an updated preliminary economic assessment (PEA) released in June, ramp access is the best and most cost-effective option for Juani- cipio. Primary access to the mine would be through a 14% decline.
The PEA demonstrated the project would yield a base-case, after-tax inter -
nal rate of return of 43% and an after-tax net present value, at a 5% discount rate, of US$1.23 billion. Payback is expected three years after plant start-up.
The PEA estimated that life-of-mine payable production would reach 153 million oz. silver, 430,000 oz. gold, 361 million lb. lead and 584 million lb. zinc from producing lead, zinc and pyrite concentrates.
Over its estimated 14.8 years of mine life, Juanicipio is forecast to produce an average of 10.3 million payable oz. silver a year at total cash costs of neg- ative US3¢ per oz. silver, net of by- product credits. (MAG’s 44% owner – ship equates to about 4.5 million oz. payable silver per year.)
The PEA was based on an indicated resource of 5.7 million tonnes grading 702 grams silver per tonne, 1.9 grams gold per tonne, 2.2% lead and 4.2% zinc. Inferred resources add 4.3 million tonnes grading 513 grams silver, 1.4 grams gold, 1.6% lead and 3% zinc.
In his research comment, BMO’s Hayes says the PEA indicated the “po – tential for an economically robust un – derground project,” and recommended further drilling and exploration work to upgrade the inferred resources and understanding of the deposit.
announced the discovery of a new zone of high-grade molybdenum and gold it named Pozo Seco in the western part of the project area.
In August 2010 the company pub- lished its first resource estimate on Pozo Seco, with indicated resources of 29.1 million tonnes grading 0.147% mo – lybdenum for 94 million lb. contained molybdenum, and 0.25 gram gold per tonne for 230,000 oz. gold. Inferred re – sources added 23.4 million tonnes grad – ing 0.103% moly for 53.2 million lb. moly and 0.17 gram gold, for 129,000 oz. gold.
The company originally budgeted $3.5 million this year for a 15,000-metre drill program at Cinco de Mayo, includ- ing Pozo Seco and Jose Manto.
Since then it has revised its budget and expanded it to $9.6 million for the year. It expects to complete its first resource estimate by the end of September, and start a PEA for the property.
In mid-July MAG reported drill re – sults from Cinco de Mayo. Exploration drill hole 12-431 intersected four dis- tinct and closely spaced zones of mas- sive sulphide, returning 89 grams sil – ver per tonne, 0.78 gram gold per tonne, 0.13% copper, 2.1% lead and 7.3% zinc over 62 metres, including 117 grams silver, 1.13 grams gold, 0.16% copper, 2.7% lead and 9.3% zinc over 32 metres, and 139 grams silver, 1.38 grams gold, 0.11% copper, 2.6% lead and 11.8% zinc over 10 metres.
At the end of June MAG Silver had working capital of $13 million.
At press time in Toronto MAG traded at $9.40 per share within a 52- week range of $6.17 to $11.46.
It has 55.7 million shares outstanding.
Apart from MAG’s stake in Juan cipio, the company owns 100% of the Cinco de Mayo discovery in northern Chihuahua state, about 199 km north of the city of Chihuahua. Cinco de Mayo is the most advanced of MAG’s five carbonate-replacement deposit targets in the country.
The Cinco de Mayo discovery was made in 2006, and in late 2009 MAG