MAG Silver, Fresnillo strengthen Juanicipio’s potential

VANCOUVER — MAG Silver (TSX: MAG; NYSE-MKT: MVG) and 56% joint-venture partner Fresnillo (LSE: FRES; US-OTC: FNLPF), have intersected wide intervals of high-grade silver mineralization beneath the existing resource at their Juanicipio project in the Fresnillo district of central Mexico.

Peter Megaw, chief exploration officer for MAG, says the result shows the project’s potential, which he says is already the “globe’s highest-grade, developing silver deposit of this size.”

During a phone interview from his home in Tucson, Ariz., he tells The Northern Miner that “it’s possible we’re looking at the very top of another mineralizing system. It also has all the right ingredients to suggest that this could be the point of entry for silver-bearing fluids that built the deposits in the region.”

MAG’s primary targets at Juanicipio are the Valdecanas and Juanicipio epithermal veins, located 5 km southwest of the Fresnillo mine — one of the world’s premier silver resources. The veins are two of many that swarm across a district that Megaw says hosts over 2.2 billion oz. silver in reserves and resources.

The partners drilled four holes along a 500-metre strike length, and 100 metres below the Valdecanas vein, which accounts for 77% of the project’s resource. 

Both veins total 10.1 million tonnes of 511 grams silver per tonne for 166 million indicated oz. silver, and 5.1 million tonnes of 372 grams silver for 61 million oz. silver, with by-products of gold, lead and zinc.

Drilling revealed a four-fold increase in vein width and silver content, with intercepts of 405 grams silver over 26.5 true-width metres from 940.2 metres — a pleasant surprise, considering the vein was weakening in silver mineralization at depth.

“We’re starting to see a resurgence of high-grade silver and gold-bearing veins cross-cutting the lower part of the resource that’s base metal-rich,” he says, adding that base metals typically flag the periphery of an epithermal deposit. “We’re clearly dealing with a multi-stage vein that has been repeatedly mineralized.”

Megaw explains that mineralization in epithermal systems occurs when hot, silver-bearing fluids boil within cracks in the crust. Boiling can be controlled by sudden releases in pressure — such as earthquakes — and can occur vertically for over 450 metres. 

He adds that it’s not uncommon for the boiling zone to move up and down through a structure over time — or even into different veins, or across strike. This results in stacked veins with overlapping swaths of mineralization, which is a common feature of the other world-class, high-grade silver deposits within the region.

“For these deposits, you normally get ore shoots that are measured in tens to hundreds of metres along strike, but in the Fresnillo district, mineralization is measured in kilometres,” he says. “There’s just no other camp in the world like it. Mexico is not only the place to be for silver, but it’s the place to be for really big silver.”

The deposit is being developed by Fresnillo, and the 2,500-metre decline is nearly halfway complete. The underground mine is scheduled to enter production at the end of 2017, and will operate as a stand alone project, despite possible synergies with operating mines nearby. 

One such example is Fresnillo’s Saucito II mine 2 km southeast, which MAG describes as the along-strike extension of the Valdecanas vein.  

MAG’s vice-president of investor relations and communications Michael Curlook says the decision shows Fresnillo’s commitment towards developing a new district. 

“With the way exploration is materializing on the property, it would make sense to have the entire infrastructure in place,” he says. “There are more discoveries to be made out there, and we envision Valdecanas as its hub.”

According to the project’s preliminary economic assessment in 2012, the operation would have a 15-year mine life, with an annual production of 10.3 million oz. payable silver and a US$6.62 per oz. all-in cash cost.

The PEA reflects a base-case scenario of US$23.39 per oz. silver, and was produced before the 2014 reform in Mexico’s tax laws. The new legislation hiked rates for taxable income to 35%, and added 10% to dividends received from foreign companies. Curlook says the impact of these changes could elicit a 2% drop in the project’s after-tax internal rate of return (IRR). 

The base-case, after-tax net present value (NPV) with 5% discount rate is US$1.2 billion, with a 43% after-tax IRR. At US$15 per oz. silver, the companies’ after-tax NPV drops to US$606 million and an after-tax IRR of 28%. In the latter scenario, MAG’s share of the NPV is US$267 million.

While most of the attention is on Valdecanas and testing the extensions to depth, Megaw notes that the rest of the Juanicipio property is target-rich.

“A number of the prospective veins in the region trend straight towards our property,” he says, using Fresnillo’s Saucito vein — which contains proven and probable reserves of 128.53 million oz. silver — as an example. “And from what we’ve seen downhole in the recent drilling, all the high-temperature alteration suggests we might also be nearing the source for all that silver. You put the two together, and you’ve got some targets that could have serious legs.”

Megaw says that MAG will have a technical committee meeting with Fresnillo to discuss exploration targets and spending. He says there’s a US$2.5-million exploration budget already put forward, but the partners have yet to decide where to allocate the metres.

“We’ll push for all the main targets on our property, and then we’ll see what our partners think,” he adds.