Orko Silver “almost a must for us” says First Majestic’s Neumeyer

First Majestic Silver signs a definitive agreement to takeover Orko Silver in share dominant deal and rules out superpit idea.

Author: Kip Keen
Posted: Monday , 17 Dec 2012

VANCOUVER, BC (MINEWEB) -

Silver-producer First Majestic Silver is taking over Orko Silver, a junior that owns the La Preciosa silver deposit in Durango state, Mexico, in a deal worth nearly C$400 million in First Majestic stock.

It is a deal that follows the breakup of a partnership between Orko Silver and Pan American Silver earlier this year when the latter chose not to exercise a 55-percent earn in and one that Keith Neumeyer, First Majestic president and CEO, called “almost a must for us” in a conference call with analysts on Monday morning. He noted First Majestic has been “monitoring” Orko Silver for a number of years, even prior to “Pan American days.”

That Orko Silver was shopping itself around was no secret. Gary Cope, Orko president and CEO, had said in October that it was in talks with three or four parties interested in La Preciosa. In the call Monday he said First Majestic and another, unnamed party pursed Orko, with “multiple offers” from both. First Majestic ended up on top, he said.

La Preciosa is close to home for First Majestic, which has its main Mexico office in the city of Durango in Durango state. Neumeyer underlined the benefit of La Preciosa’s proximity - 45 minutes by road, he said - to its offices and other operations in Durango and surrounding states.

“This will give us two large operations in the state of Durango,” Neumeyer said, a fact he called, “economically a great thing for us.”

Furthermore he stressed the importance of the acquisition given few options on the market. There are “not many pure silver project out there as many of you know,” Neumeyer said.

The deal as set out Sunday in a press release put the value of Orko Silver’s shares @ C$2.72. Orko Silver shareholders are to receive 0.1202 a First Majestic share and C$0.0001 in cash, valuing Orko at about C$387 million.

Though at first reticent to go into any detail on how First Majestic would approach La Preciosa, Neumeyer opened up a little bit about potential operations in answer to analyst questions.

One thing he did make clear at the outset, however: There would be no superpit at La Preciosa, an idea that Orko Silver had floated as a possible way to make the project more favourable in terms of economics over those in a scoping study Pan American had produced. Therein Pan American had proposed a combined underground and open pit operation for a 12-year mine life that would produce about seven million ounce silver a year @ $11.84 per ounce silver in total cash costs and a $270 million cost to build.

That gave a 24-percent internal rate of return assuming $25 per ounce silver and $1,250 per ounce gold.

Neumeyer struck down Orko Silver’s ongoing consideration of a larger superpit idea that would have gone beyond the Pan American’s view of the project, however. He said he knew Orko was excited about the superpit concept, “but it is a concept that we don’t support.”

Neumeyer said First Majestic would be “more conservative” in their approach and that First Majestic had “a pretty good idea what it’s going to look like” in terms of mining and grade.

From his comments to analysts this overview of what La Precisosa would look like can be drawn. No superpit, there would likely be two small pits and an underground component. The mine would produce dore and likely get recoveries in the range of 88 percent for silver and 70 percent for gold.

Though he didn’t address capital costs, Neumeyer said the primary “cash burn” would be in 2015 for First Majestic. Going into slightly greater detail, he laid out a rough development schedule for La Preciosa over the next four years:

2013: permitting, final planning
2014: site, project preparation
2015: construction
2016: production

Mine-size wise, Neumeyer was not specific. But he did say La Preciosa would be bigger than First Majestic’s 4,000 tonne per day La Encantada silver mine and in terms of processing it would be “almost a duplicate of that.”

The La Encantada plant uses cyanidation, having upgraded from flotation a few years back.

Neumeyer also addressed project challenges for La Preciosa. The main challenges he said would be land and water rights, which First Majestic would negotiate in the coming year or so, not permitting. Indeed, he sounded supremely confident about permitting, saying, there “won’t be any issues with permitting at all.”

http://www.mineweb.com/mineweb/content/en//mineweb-central-south-america?oid=167205&sn=Detail