First Majestic goes on Mexican shopping spree (October 16, 2006)

Vancouver — Junior silver producer First Majestic Resource (FR-V, FMJRF-O) will bolster its Mexican property portfolio with new acquisitions in the vicinity of its La Parrilla mine, in Durango state.

The company is buying the Quebradillas and Viboras silver mines plus a 31-sq.-km package of mining concessions in the La Parrilla mining district from Grupo Mexico (GMBXF-O) for US$3 million, payable over two years plus a 1.5% net smelter royalty (NSR) capped at US$2.5 million. First Majestic can buy the NSR for US$2 million.

Several old operations that were developed by Grupo Mexico in the 1970s — the Quebradillas, El Recuerdo, La Luz and Las Vacas mines, — are included in the package. Exploration consisted of 77 drill holes totalling over 16,800 metres in addition to development of the 1,034-metre Viboras ramp.

The properties host both manto-style silver-lead-zinc replacement and silver vein mineralization.

A historic resource of 551,860 tonnes of oxide mineralization grading 175 grams silver per tonne was calculated in 1981 in the El Recuerdo and Viboras zones. A further combined sulphide resource estimate of 602,595 tonnes at 235 grams silver was later tabled in 1990 on all the projects. Additionally, a tailings resource of 194,545 tonnes averaging 163 grams silver was estimated on the Vacas site. The global historic resource estimate for the project package is 1.35 million tonnes grading 200 grams silver, 0.16 gram gold per tonne, 2.75% lead and 2.6% zinc.

First Majestic is eager to use the fully developed mining ramp to reach an underground zone of visible mineralization and verify historic drill data. The company anticipates it could contribute significantly to its milling operation at La Parrilla.

The company’s new 800-tonne-per-day mill facility at La Parrilla, replacing the old 180-tonne-per-day mill, is nearly complete. The new mill will be brought on-stream in two 400-tonne-per-day lines to allow for continual operation.

First Majestic restarted production at La Parrilla in mid-2004; it anticipates production of about 1.3 million oz. per year. La Parrilla had operated from 1956 to 1999, when it was shut down due to low silver prices. Production over the 43-year period is estimated at about 700,000 tonnes of ore averaging 300 grams silver per tonne, 1.5% lead and 1.5% zinc.

It has also entered into an agreement to buy private Mexican mining company Desmin for US$1.5 million. Desmin holds an exploitation contract with Peoles covering operation of the La Encantada silver mine in Coahuila state and can purchase the mine, which is producing about 800,000 oz. silver per year, for US$3.25 million.

Earlier this year, First Majestic closed a $28-million financing consisting of 7 million special warrants at $4.00 apiece. The bulk of the funds were earmarked for its acquisition of First Silver Reserve, which operates the San Martin silver mine in Mexico’s Jalisco state. The merger was completed in September and First Silver is now a wholly owned subsidiary.

With 42 million shares outstanding, First Majestic posts a market capitalization of $118 million, based on its recent $2.80 share price. The stock has a 52-week trading range of $1.89-$7.05.