First Majestic raising $40 million for Mexico expansion.

Vancouver Eyeing sharply higher production from its Mexico silver mines, First Majestic Silver (FR-V, FMJRF-O) has struck a deal with a syndicate of underwriters to raise $40 million.

Proceeds are earmarked for equipment that will be used to increase the companys silver production to a targeted seven million oz. in 2008, from 2.5 million last year.

That production will be generated by three mining operations La Parrilla, the San Martin, and La Encantada, which are expected to produce a total of five million oz. silver in 2007.

At the La Encantada mine in Coahuila state, for example, the company plans to raise production by installing a cyanidation circuit in the mill, allowing it to extract exposed silver grains from crushed ore by dissolving it in weak cyanide solution.

Money for the planned expansion will come from the sale of units priced at $5 per unit. Each unit will entitle the holder to acquire one common share and one half of one share purchase warrant. Each whole share purchase warrant will be exercisable at a price of $6.50 for 18 months after the financing closes.

First Majestic shares fell 28 to $4.95 on the TSX Venture Exchange on March 21, the day that terms of the unit offering were announced.

Those units are being sold by an underwriting syndicate co-led by Sprott Securities and CIBC World Markets, and including Blackmont Capital.

Under an agreement, the underwriters are set to receive a commission of 5.5% of the gross proceeds of the offering, which is scheduled to close on April 12, 2007, assuming it receives the necessary regulatory approvals.

The underwriters retain the option to purchase an additional 15% of the offering at the issue price at any time prior to the closing date.

First Majestic recently bought the former Quebradillas and Viboras silver mines, plus a 31-square kilometre-package of mining concessions in the La Parrilla mining district in Durango State [north-central Mexico] from Grupo Mexico for US$3 million.

Those projects are located near its La Parrilla mine.