Oremex looks to become Mexico’s next big silver play

Having one of the most heralded silver bulls in your corner doesn’t hurt when you’re looking to become the next significant silver miner in Mexico.

And that is just the set of circumstances that Oremex Resources (ORM-V) is armed with as it drives towards production at its Tejamen project in Mexico’s Durango state.

The bull backing the firm is none other than Eric Sprott, as his Sprott Asset Management team is currently holding roughly 16% of Oremex’s outstanding shares.

Sprott’s position on silver has been well outlined – in a nutshell he believes the above surface supplies pale in comparison to the dollars that are eager to snatch them up – and he believes the metal is due to break well out of a long consolidation pattern.

But with so many silver explorers to choose from, why the faith in Oremex?

The first part of the answer lies in Tejamen itself, the company’s flagship project currently has an inferred resource of 22.6 million tonnes grading 69.8 grams silver for 50.8 million oz. of silver.

The economics of the project were outlined back in a 2006 report prepared by Snowden which considered an open pit, heap leach operation that would produce 3.5 to 4 million tonnes of silver a year at a cash cost of paltry US$4 per oz. The mine would cost US$50 to build and would mine ore at a 2:1 strip ratio.

While costs are due for an increase due to their being five-years out of date, a silver price in the mid-US$30 per oz range, which is where it sits now, would clearly offer some comfortable margins.

But while production costs are sure to rise, so too, the company believes, will resources.

The exploration upside at the project comes via feeder veins beneath the two main deposits, Los Mantos and Cerro Prieto.

And while the prospectiveness of Tejamen is tantalizing, it certainly doesn’t compose the totality of the Oremex’s story going forward.

Indeed the company felt confident enough in just its silver assets to shed two of its more prospective gold projects via a spin-out that was announced at the beginning of March.

While part of the motivation for the spin-out was that the company didn’t feel the projects values weren’t being reflected in its market cap, the prospect of building itself into a substantial silver pure play must also have been quite alluring.

For that to happen, however, a couple of other projects in its pipeline will have to bear fruit.

The closest one to doing so at the moment is the San Lucas Silver project.

The project lies on strike with Silver Standard Resources’ (SSO-T, SSRI-Q) San Agustin project in Durango and has already returned some stellar assays as 14 metres grading 158 grams silver; 16 metres grading 81.7 grams silver and 12 metres grading 145 grams silver.

Next on the list in terms of development is the Chalchihuites project in the Zacatecas state.

The project is situated in an prolific silver producing district as it is on strike and less than 4-km from First Majestic Silver’s (AG-N) Del Toro Project, which has 20.9 million oz. of silver in the measured and indicated category and 35.9 million oz. in the inferred category.

Oremex describes the property as hosting a skarn and manto system with mineralization associated with shear zones hosted in a granodiorite stock and rhyolite dikes, and in limestone adjacent to the granodiorite stock.

The site hosted past production of high-grade silver-zinc-lead that saw grades of up to 3,800 grams silver, 0.99 grams gold.

With that kind of history, and strong early sampling results, the company says Chalchihuites has the potential to “quickly become our number two project in terms of importance.”

The results from that sampling program, released on March 21, returned highlight grades of 3,540 grams per tonne of silver, 3.40 grams gold, 13.2% lead and 5.4% zinc.

While the sampling program was being done to identify drill targets, Michael Smith, Oremex’s president and chief executive, says the results not only gave the company targets but also extended the silver-gold-lead-zinc mineralization on the property.

As of late, the market seems to be buying into such prospectiveness, as Oremex shares have climbed 74% since mid-February when they were trading for 23¢. In Toronto on March 23 the company’s shares closed at a 52-week high of 40¢.