New moly-gold zone for Mag Silver in Mexico

Vancouver – Mag Silver (MAG-T) thinks it might be getting close to the jackpot – drills at its Pozo Seco project in Mexico are returning molybdenum-gold intercepts that are outlining an interesting mineralized zone and possibly pointing the company towards the large-scale carbonate replacement or skarn deposit it seeks.

Pozo Seco is a new discovery within Mag Silver’s large Cinco de Mayo project in northern Chihuahua state. In September the company’s reconnaissance drilling effort produced an interesting hit in hole 83: 56.8 metres grading 0.19% molybdenum and 0.11 gram gold per tonne. A follow-up hole nearby then returned 75 metres of 0.307% moly and 0.07 gram gold, including 4.7 metres of 1.64% molybdenum

At first glance the near-surface intercepts simply indicate the possibility of a zone of moly-gold mineralization. But Mag Silver is not just on the hunt for mineralized zones; more specifically, the company is seeking the intrusive centre that is the source of the abundant silver-lead-zinc mineralization within the Cinco de Mayo district. And the presence of high-grade molybdenum might indicate proximity to that intrusive centre because a proximal moly zone is one key characteristic of the largest skarn-replacement deposit known in Mexico, the San Martin-Sabinas deposit.

Now, just six months later, Mag Silver has already traced the moly-gold zone along 1,700 metres strike, across 250 to 350 metres width, and to an average of 50 metres thickness. The company has dedicated five drills to the target; two are drilling infill holes, one is probing for on-strike extensions, and two are testing regional targets for the hoped-for large scale skarn-replacement deposit.

In the latest set of results, hole 182 cut 116.9 metres grading 0.098% molybdenum and 0.25 gram gold, starting 39 metres downhole and including 13.6 metres of 0.239% moly and 1.1 grams gold. This intercept extended the zone 600 metres northwest of hole 144, which previsouly returned 44 metres of 0.16% moly and 0.27 gram gold. In the most northwesterly hole drilled to date, hole 189 intercepted several thin, well-mineralized zones such as 5.3 metres of 0.02% moly and 0.4 metres of 0.635% moly, but it was collared on a silicified breccia outcrop several hundred metres away from the Lucia fault where mineralization is usually the thickest.

“Even at this early stage of drilling, it is clear that Pozo Seco is developing real size and grade potential in the moly-gold zone, and our successful large step-outs through cover indicate that the system remains open along strike for some distance,” said Mag Silver’s chief executive officer, Dan MacInnis. “In addition to the stand-alone importance of this emerging moly-gold discovery, plugging its extent into our exploration model provides additional evidence that a very large CRD system may lie at depth nearby. There are clear large-scale regional implications in what we are finding.”

Carbonate replacement deposits (CRDs) have provided some 40% of Mexico’s 10-billion oz. silver production. They are massive to semi-massive silver-lead-zinc sulphide intrusions that replaced a limestone host rock. These deposits occur along major regional structures; Cinco de Mayo sits on the same northwest-trending regional structure that hosts several large CRDs. The area had not been explored previously because a layer of alluvium obscures almost all outcrop. Mag Silver made its initial discovery, the Jose Manto silver-lead-zinc zone, based on geochemical and geophysical indicators.

Mag Silver also recently announced its 2009 financial results. At the end of last year the company had $26.8 million in the bank, which is more than enough to funds its exploration projects in 2010. The company plans to spend $9.4 million on exploration, of which $7.2 million is earmarked for its wholly-owned Mexican properties. Cinco de Mayo is Mag’s priority in Mexico but the company also owns four other CRD-prospective projects in the country.

Mag Silver also owns 44% of the Juanicipio project, also in Mexico, which is a joint venture with Fresnillo (FNLPF-O, FRES-L). The partners plan to spend US$5.9 million at Juanicipio in 2010 in a program that will include 21,400 metres of drilling and US$1.5 million in engineering work, in support of a prefeasibility study. In early 2009 an updated estimate pegged the indicated resource at Juanicipio’s Valdecanas vein at 3 million tonnes gradin 879 grams silver per tonne, 2.22 grams gold, 2.39% lead, and 4.15% zinc. Inferred resources add 7.2 million tonnes averaging 458 grams silver, 1.54 grams gold, 1.89% lead, and 3.14% zinc.

Mag Silver lost $13.5 million in 2009. Part of the loss funded the company’s legal needs in response to a hostile takeover bid from Fresnillo initiated in late 2008. Since the US$4.45-per-share bid came from an insider – Fresnillo owns 19.8% of Mag Silver – a formal valuation was required. But the process was suspended after the independent committee decided it could not complete the valuation without critical information controlled by Fresnillo that Fresnillo refused to provide. Mag applied to the Ontario Securities Commission to compel Fresnillo to produce the information, which the OSC did. Within two days of the order, Fresnillo withdrew its bid. Mag Silver reports its defensive efforts added more than $2 million in legal fees, as well as increasing other administration and AGM costs..

Mag Silver’s share price fell 34¢ following news of its latest drill results and 2009 financials to close at $7.62. The company has a 52-week trading range of $4.85 to $8.25 and has 50 million shares outstanding.