Orko takes nino steps in Mexico

SITE VISIT

Durango, Mexico — Taking a methodical approach to exploration in north-central Mexico isn’t necessarily a headline-grabbing exercise.

But it is one that Orko Silver (OK-V, OKOFF-O) hopes will make it the target for any mining company that might be looking to bulk up on silver reserves, by snapping up the junior miner and its Durango state concessions.

“Our intention is not to be a producer,” says Orko president and chief executive officer Gary Cope, during a recent tour of the company’s three exploration properties in Durango. “We want to build as many ounces as we can and then sell (the company) off.”

Orko aims to achieve that goal by taking a step-by-step approach to drilling on 11.3 sq. km of ground called the La Preciosa concessions.

They are located amid rolling hills on the edge of the Sierra Madre Occidental Mountains, a region that would make a perfect setting for a Spaghetti Western, with its cactus plants, dormant volcanoes, and lonely Mesquite trees.

From the state capital of Durango, it takes about 45 minutes to drive to Orko’s Mexican properties, which cover 430 sq. km, and include the nearby Santa Monica and San Juan concessions, where exploration is at a much earlier stage.

Orko’s objective is to outline at least 100 million oz. of silver within the type of low-sulphidation, epithermal vein system that has made Mexico one of the world’s leading producers of silver in the last two centuries.

During The Northern Miner’s recent visit to the properties, the company was well on the way to reaching its target after tabling an outlined inferred resource of 39.3 million oz. of silver equivalent within 5.7 million tonnes of material grading 192.9 grams silver per tonne and 0.345 gram gold. That amounts to a silver-equivalent grade of 213.6 grams, the company says.

The latest estimate is up from 30 million oz. in September 2006, and is based on a 100-gram-per-tonne cutoff, and minimum true vein width of 1.5 metres.

Esteban Rosas Palacios, a deputy minister in Durango’s Ministry of Economic Development, says companies like Orko have picked a good time to explore for precious metals in Mexico.

Drawn by high metal prices, the lure of cheap labour, and support from receptive governments, mining companies are expected to spend about US$70 million on exploration in Durango this year, an increase from US$60 million in 2006, according to the Ministry of Economic Development.

About 80% of that money is expected to be invested by Canadian firms.

“Our main metals are gold, silver, lead and zinc,” Rosas says.

In Orko’s case, it is only the latest in a series of parties to either explore or mine the La Preciosa concessions in the last 300 or 400 years.

Just before the Hunt Brothers tried to corner the silver market, driving prices to a peak of US$54 an oz. in 1979, Mexican company Luismin had expanded part of the underground workings and drawn up plans to build a processing mill.

But those plans were abandoned after prices collapsed in March 1980, tumbling to US$10.80 from US$21.62 in a single day.

That was well before Luismin became the Mexican division of Goldcorp (g-t, gg-n) as a result of Goldcorp’s merger with Wheaton River Minerals in early 2005.

Now that silver is trading at just over US$13 an oz., Orko is hoping to be scooped up by a major mining company willing to pick up where Luismin left off.

Still, Cope, a former stockbroker who leads a management group that owns about 25% of Orko’s 77 million shares outstanding (96 million fully diluted), says he is not in any rush to be taken over.

Takeover speculation

“I wouldn’t be ready to sell this thing with everything that we are getting right now,” says Cope, referring to the most recent resource estimates for La Preciosa, which are based on 79 diamond drill holes and over 28,563 metres of core.

About 3% of those shares — which traded recently at 74 on the TSX Venture Exchange — are held by Goldcorp, a name that often pops up when Orko officials are asked to speculate on who might be interested in launching a takeover bid for their company.

Other names include those of Silver Standard Resources (SSO-T, SSRI-Q), Hecla Mining (HL-N) and First Majestic Silver (FR-V, FRMSF-O).

Under an agreement with Goldcorp, Orko has the right to earn a 75% stake in the Santa Monica concessions by spending $1.5 million on exploration.

There is no guarantee at this stage that Orko will become a takeover target.

However, Don Poirier, a mining analyst with Blackmont Capital in Vancouver, thinks Orko is already attracting the attention of parties who might be interested in beefing up their silver resources.

“They are coming along nicely,” he says.

An Orko spokesman says company officials were approached at the recent Prospectors and Developers Association of Canada conference in Toronto by executives from Mexican firm Industrias Peoles (IPOAF-O).

The spokesman says Peoles has offered to take concentrates from Orko for processing at a smelter in Torreon, a city east of the project site. When asked to comment on the Peoles offer, Cope said that he personally has not been approached.

For the time being, the company just wants to keep drilling, Cope says.

At a cost of about US$350,000 a month, the company has two drill rigs working 24 hours a day, seven days a week at La Preciosa. At presstime, the company said it had started on holes 105 and 106 and expects to be in a position to release more drill results some time in April.

Current resource estimates take into account mineralization that is contained in the main Abundancia and La Gloria veins — over a strike length of 1.2 km in each of those veins — as well as the Luz Elena, and Esperancita veins.

Later this year, the company hopes to have completed enough preliminary geophysical work to have established drill targets on the much larger Santa Monica property, which is located east of La Preciosa, and covers more than 172 sq. km.

The methodical approach Orko geologists are taking is clearly evident inside three shacks on the property, where drill core is neatly stacked inside corrugated fibre-board boxes and labelled for easy access.

Each core shack is equipped to hold about 400 tonnes of rock.

Under the guidance of Orko’s chief geologist, Ben Whiting, day-to-day operations at La Preciosa are being run by Alejo Monsivais, a 56-year-old exploration consultant who oversees a team of about 20 geologists and helpers.

A native of San Luis Potosi who has previously worked for Peoles and Grupo Mexico (GMBXF-O), it is his job to deal with local farmers and get their permission to use vital access roads and put drill rigs on their properties.

“I am pretty good at that,” he says, adding that Orko has been smart to allow Mexicans with local knowledge to handle the technical aspects of the exploration program. “The only ones who know the country are local people. That is the reason they (Orko) have success.”

As an exploration contractor, it is Monsivais’ job to provide vehicles and geologists to facilitate Orko’s activities.

Skilled carpenters, welders and labourers are available not only in Durango, but in nearby towns and villages such as Francisco I. Madero, population 6,000, located about 10 km southeast of La Preciousa.

Having opted to remain in Mexico instead of heading to Mongolia to look for uranium, Monsivais says he is fairly certain that Orko will achieve its exploration targets.

“We are going to get one hundred million ounces of silver, plus,” he says.