First Majestic Silver Corp (FR)

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First Majestic Resources Aims To More Than Double Production To 12 Million Ounces Of Silver By 2012 - September 23, 2009

By Charles Wyatt

Silver has long been First Majestic’s thing. It currently owns and operates three silver mines in Mexico - La Encantada, La Parrilla, and San Martin. It’s also working up the Del Oro silver project, which is currently undergoing a pre-feasibility study. No wonder, then, that when First Majestic decided that it wanted to participate in the trend to consolidation currently in evidence across the Canadian junior sector, it went for a silver company. The company in question, Normabec, has a primary asset in the northern portion of San Luis Potosi state in Mexico called Real de Catorce. It also has an interest in the Pitt Gold property in Quebec, and this is where the clever thinking behind the whole deal manifests itself. Knowing that there would be a number of Normabec shareholders who would like to cling onto the local gold play as the gold price continues to advance, Pitt and all the other mineral interests currently held by Normabec in Quebec are going to be put into a separate company. This company, which is being given the name of Newco while a better name is sought, will be run by the Normabec management as before.

In one sweep, therefore, the most likely arguments against the deal have been swept away. The directors of Normabec retain their jobs and the shareholders continue to have stakes, rather than a single stake, in its silver and gold assets. First Majestic clearly knows what it is doing in Mexico as it has done it all before, so it should advance Real de Catorce, while Newco focuses on the Pitt gold property. Everyone should be happy with this arrangement, and so they seem to be. It has the unanimous support of the boards of directors of both Normabec and First Majestic, and the Normabec board of directors is going to recommend that their shareholders vote in favour at the special meeting which should take place early in November once a full information document has been circulated in mid-October. Lockup and support agreements have been signed by each officer and director, as well as the largest shareholder of Normabec.

First Majestic is paying 0.060425 of a First Majestic share for each Normabec share, but Normabec shareholders will also receive shares in Newco. And just to show willing, and get Newco on the move, First Majestic is going to invest C$300,000 through a private placement. This will give First Majestic an interest in around 10 per cent of Newco. As one of the Rothschild family once said: “the best deals are those when both parties think they have won.” It is not often that one comes across an example, but this comes close. A value of C$0.1806 is assigned to each Normabec share - C$0.1406 of it from First Majestic shares and C$0.04 from Newco shares - and this represents a premium of nearly 50 per cent, based on the average prices of First Majestic and Normabec shares for the 20 trading days prior to 11th September, 2009.

Keith Neumeyer will certainly be getting what he wants too. The Real de Catorce silver project which consists of approximately 6,326 hectares of mineral rights containing a drilled NI 43-101 compliant resource of 33.69 million ounces of silver in the measured and indicated categories, and 13.10 million ounces inferred. As Keith explains, this equates to an acquisition cost of US18 cents per ounce of silver in the ground, which does not look bad against First Majestic’s finding cost of US12 cents per ounce. First Majestic has been looking at the project for some time, has already carried out due diligence on it, and reckons it will make a great strategic fit with the current portfolio. Robert Ayotte , chief executive of Normabec sees the advantage to his shareholders as being the speed with which Real de Catorce can be developed by First Majestic. He clearly sets a lot of store by the proven expertise of the First Majestic technical and mining team, and his shareholders now stand to benefit from First Majestic’s new production profile.

The deal follows closely on the heels of a successful placing by First Majestic which consisted of two tranches, raising a total of C$9.58 million. The new money will be used mostly to fund the major new 3,500 tonnes per day cyanidation mill at La Encantada. This has just about been completed and commissioning should be finished by the middle of next month. When it is working to full capacity the new mill should be able to produce 4.3 million ounces of silver dore a year, and it is the initial impact of this that has encouraged Keith to forecast production of five million ounces of silver for 2009. The important bit of news behind the figures is that although silver recoveries at the three mines increased from 60 to 64 per cent in the second quarter of this year, the introduction of cyanidation at La Encantada will take recoveries there way up to 85 per cent, and this is a project that will account for over 60 per cent of total production next year.

The next priority will be to bring the Del Oro mine into production, Keith explains, as he drives to Spokane for a silver mining conference. At the same time drilling will be carried out at Real de Catorce to reinforce understanding of the geology and to increase the silver resource. As a result of the new mill the company is targeting production of 6.5 million ounces in 2010, but with Del Oro on stream production should rise to nine million ounces in 2011. Well before then attention will also be on Real de Catorce, which should be capable of driving annual production up to 12 million ounces of silver in 2012. Keith points out that production has doubled in the last two years and will double again in the next two. By that time First Majestic will be up there with the biggest of the mid-tier producers and the rating should soon start to reflect this potential.

Source: http://www.minesite.com/nc/minews/singlenews/article/first-majestic-resources-aims-to-more-than-double-production-to-12-million-ounces-of-silver-by-2012/41.html

Kiwi