First Majestic rises on Del Toro intercept (November 10, 2008)

Vancouver — After disappointing silver production numbers for the third quarter pushed First Majestic Silver’s (FR-T, FRMSF-o) share price below $1, a whopper hole proving a new massive sulphide body at the Del Toro mine in Mexico seems to be turning the tide.

In mid-July, First Majestic announced that hole SSJ-04 hit a new massive sulphide body at depth under the old San Juan mine. The discovery hole returned 74.2 metres grading 359 grams silver per tonne, 7.07% lead and 7.6% zinc.

To get a handle on the size of this new body, the company drilled hole 8 perpendicular to hole 4. The new hole first passed through the two massive sulphide bodies that sit above the new discovery and showed that they join at depth, returning 29.4 metres grading 312 grams silver, 4.22% lead and 2.2% zinc from 358 metres depth.

Then, starting 420 metres down-hole, the drill hit the new sulphide body and pulled out 62.1 metres averaging 422 grams silver, 6.29% lead, 6.78% zinc and 0.74 gram gold. The intercept included 1,191 grams silver, 9.96% lead and 12.42% zinc over 6.2 metres, as well as 8.2 metres grading 1,238 grams silver, 13.78% lead and 31.4% zinc.

The newly discovered orebody consists of replacements and veins of massive galena and sphalerite with high silver content and disseminated mineralization in the contact between the skarn and the intrusive rock, which carries the low gold values.

The Del Toro silver mine, known until recently as the Chalchihuites group of properties, is in the Chalchihuites mining district in Zacatecas state. The 4-sq.- km property covers two historic mines: Perseverancia and San Juan. Importantly for First Majestic, Del Toro is 60 km southeast of the company’s flagship La Parrilla silver mine.

Mineralization at Del Toro comes in the form of veins, mantos, brecciated pipes, chimneys and stock-work zones, with oxidized upper zones and sulphide mineralization at depth. First Majestic has spent three years developing the property, completing 56 drill holes totalling almost 12,000 metres and clearing or developing more than 1,200 metres of declines, drifts, ramps and raises.

First Majestic recently calculated a resource estimate for Del Toro, which pegged measured and indicated resources at 1.4 million tonnes grading 269 grams silver, 4.69% lead and 4.8% zinc and added 1.8 million tonnes grading 306 grams silver, 5.77% lead and 5.94% zinc in the inferred category. The estimate does not include results from hole 8, which are expected to add significantly to the count.

Underground drilling is ongoing in the San Juan area, aimed at defining the deep and western extensions of these three orebodies, which all remain open. Underground development is also continuing at both Perseverancia and San Juan.

In October, First Majestic announced its silver production numbers for the third quarter. A particularly nasty wet season disrupted operations at its three mines in Mexico this summer, raining on its production numbers and driving silver-equivalent production down 34%.

The situation at the San Martin mine, 250 km north of Guadalajara, Mexico, was particularly grim. A rock slurry weighing thousands of tonnes poured down the slopes above the mine, blocking three of its four entrances and destroying an access bridge.

And if that wasn’t enough, all that water lowered throughput in the crushing circuits and screens.

As a result, ore production decreased about 170,000 tonnes, or 20%, in the third quarter compared with the second. That translated into about 840,000 silver-equivalent oz. produced.

Despite the hit to production in the third quarter, First Majestic says it is en route to record production in 2009 with mill capacity upgrades at its three mines. The other two mines are La Parrilla, 65 km southeast of Durango, and La Encantada, in Coahuila state near the border with Texas.

San Martin and La Parilla will get modest boosts from 800 tonnes to 1,000 tonnes per day, while La Encantada will jump to 3,500 tonnes per day from 800 tonnes.

And there may be a silver lining in this year’s production-lowering rains. First Majestic president and CEO Keith Neumeyer said in a statement that, given recent declines in the price of silver, it wasn’t a bad time to sell less of it.

Mindful of a repeat performance next year, he also said the company is taking measures to avoid lower throughput in the crushing circuit.

First Majestic gained 30 in the two days following its news from Del Toro to close at $1.22. The company has a 52-week trading range of 87-$5.75 and has 73.8 million shares issued.